Question

Personal Investment Analysis Find of the cost of a bachelor's degree at the university of your choice assume additional costs of $16,000 for an additional fifth year of education to get Master's degree. Assume that all tuition is paid at the beginning of the year. A student considering this investment must evaluate the present value of cash flows from possessing a graduate degree versus holding only the undergraduate degree. Assume that the average student with an undergraduate degree is expected to earn an annual salary of $55,000 per year (assumed to be paid at the end of the year) for 10 years. Assume that the average student with a graduate Masters degree is expected to earn an annual salary of $76,000 per year (assumed to be paid at the end of the year) for nine years after graduation. Assume a minimum rate of return of 10%. Determine the net present value of cash flows from an undergraduate degree. Use the present value table provided in this chapter 26. Determine the net present value of cash flows from a Masters degree, assuming that no salary is earned during the graduate year of schooling. What is the net advantage or disadvantage of pursuing a graduate degree under these assumption?

Answer 1

			ALL AMOUNTS IN $
	UNDERGRADUATE
YEAR	Salaryif undergraduate (A)	salary after graduation (B)	Present value of $1 @10% {C}	Present value of cash flows A*C	Present value of cash flows B*C
0		-16000	1	0	-16000
1	55000		0.909	50000	0
2	55000	76000	0.826	45454.55	62809.92
3	55000	76000	0.751	41322.31	57099.92
4	55000	76000	0.683	37565.74	51909.02
5	55000	76000	0.621	34150.67	47190.02
6	55000	76000	0.564	31046.07	42900.02
7	55000	76000	0.513	28223.70	39000.02
8	55000	76000	0.467	25657.91	35454.56
9	55000	76000	0.424	23325.37	32231.42
10	55000	76000	0.386	21204.88	29301.29
	TOTAL			337951.19	381896.19
Net advantage / disadvantage:- if one pursue a graduation degree it will have more
cash flows than an undergraduate degree. So one must do graduation.