You are 30 years old today and are considering studying for an MBA. You have just...

You are 30 years old today and are considering studying for an MBA. You have just received your annual salary of $50,000 which you expect will grow by 3% per year. MBA’s typically earn $80,000 upon graduation with salaries growing by 4% per year. The MBA program you’re considering is a full-time, 2-year program that costs $30,000 per year, payable at the end of each study year. You want to retire on your 65^th birthday. The relevant discount rate is 8%. Is it worthwhile for you to quit your job in order to earn an MBA? (Ignoring taxes.)

Use Excel formulas.

Solutions

Expert Solution

Real interest rate after considering growth option:

Continue job = (1+8%)/(1+3%) -1 = 4.84544%

MBA = (1+8%)/(1+4%) - 1 = 2.8571%

Particulars	Continue	Graduate
Salary	50,000.00	80,000.00
× PFAF Continue: 35yrs, Graduate: 33yrs	16.67953	21.18563
Present value of salary	833,976.27	1,694,850.66
× PV factor for 2 years		0.85734
Present value of salary today	833,976.27	1,453,061.26
Less: present value of tuition	-	($53,497.94)
Net present value	833,976.27	1,399,563.32

Get MBA as present value is higher.

jeff jeffy answered 1 year ago

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