You have just turned twenty-six years of age and feel it is necessary to upgrade your...

You have just turned twenty-six years of age and feel it is necessary to upgrade your qualifications. After some consideration, you feel that undertaking full-time study for an MPA degree at the Fletcher School is one alternative. For the two years of full-time study, tuition and living expenses will be $55,000 per year. In addition, you will have to give up your current job with a salary of $75,000 per year. Assume all cash flows occur at the end of the year. Assume a real interest rate of 3% per year, ignoring taxes. Also assume that the salary increase is a fixed real amount that starts after you complete your degree (at the end of the year following graduation) and lasts until retirement at age sixty-five. In order to justify the investment, by how much does your salary have to increase as a result of getting the MPA degree?

Expert Solution

Present value of tuition cash flows	$105,240.83
Present value of cash flows of salary lost	$1,710,616.14
Total PV at age 26	$1,815,856.97
Present value at age 28	$1,926,442.66

PMT for the above amount	$86,904.96
Amount of increase in salary	$11,904.96

jeff jeffy answered 3 months ago

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You have just turned twenty-six years of age and feel it is necessary to upgrade your...

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