Question

As a soon to be graduate, you are considering getting a master’s degree in your field before entering the workforce. Assuming the costs of getting a master’s degree in your field are $20,000 a year for each of the next two years, and that this advanced degree will increase your expected salary (versus that with just a bachelor’s degree) by $10,000 a year, calculate the NPV of this decision assuming your personal WACC is 8 percent and that you expect to work for 40 years before retirement.

Answer 1

Computation of NPV
Year	Cash flow	PVIF @ 8%	Present value
0		1	$               -
1	-20000	0.925926	$(18,518.52)
2	-20000	0.857339	$(17,146.78)
3	10000	0.793832	$    7,938.32
4	10000	0.73503	$    7,350.30
5	10000	0.680583	$    6,805.83
6	10000	0.63017	$    6,301.70
7	10000	0.58349	$    5,834.90
8	10000	0.540269	$    5,402.69
9	10000	0.500249	$    5,002.49
10	10000	0.463193	$    4,631.93
11	10000	0.428883	$    4,288.83
12	10000	0.397114	$    3,971.14
13	10000	0.367698	$    3,676.98
14	10000	0.340461	$    3,404.61
15	10000	0.315242	$    3,152.42
16	10000	0.29189	$    2,918.90
17	10000	0.270269	$    2,702.69
18	10000	0.250249	$    2,502.49
19	10000	0.231712	$    2,317.12
20	10000	0.214548	$    2,145.48
			$ 44,683.53
NPV =			$ 44,683.53
Since NPV is positive therefore we should go with master degree