The Mba Decision

The MBA Decision

The cash flows and NPVs of the three sceneries are illustrated below.

Current Position
    Yr0       Yr1         Yr2                           Yrn         n≥40

        $60,000(1-26%)   $60,000(1+3%)(1-26%)           $60,0001+3%n-1(1-26%)
            after tax salary       after tax salary                             after tax salary
NPV=$60,000(1-0.26)(1+0.065)+$60,000(1+0.03)(1-0.26)(1+0.065)2+$60,000(1+0.03)n-1(1-0.26)(1+0.065)n
          =$60,000(1-0.26)(1+0.065)[1+1+0.031+0.065+…+1+0.031+0.065n-1]
          =$60,000(1-0.26)(1+0.065)[1-1+0.031+0.065n-11-1+0.031+0.065]
          =$923,958.17 (n=40)

The Ritter College of Business at Wilton University
$65,000 tuition           $65,000 tuition
+$3,000 books&supplies   +$3,000 books&supplies
+$3,000 insurance       +$3,000 insurance
+$2,000 board           +$2,000 board

    Yr0       Yr1         Yr2         Yr3                 Yrn         n≥40

                          $20,000     $110,000(1-31%)     $110,0001+4%n-3(1-31%)
                                  signing bonus   after tax salary           after tax salary
NPV=-$73,000-$73,000(1+0.065)+$20,000(1-0.31)(1+0.065)2+$110,000(1-0.31)(1+0.065)3+…+$110,000(1+0.04)n-3(1-0.31)(1+0.065)n
          =-$73,0001+11+0.065+$20,000(1-0.31)(1+0.065)2+$110,000(1-0.31)(1+0.065)3[1-1+0.041+0.065n-31-1+0.041+0.065]
          =$1,435,862.53 (n=40)

The Bradley School of Business at Mount Perry College
$80,000 tuition           $80,000 tuition
+$4,500 books&supplies   +$4,500 books&supplies
+$3,000 insurance       +$3,000 insurance
+$2,000 board           +$2,000 board

    Yr0       Yr1         Yr2         Yr3                 Yrn         n≥40

                          $18,000     $92,000(1-29%)     $92,0001+3.5%n-3(1-29%)
                                  signing bonus   after tax salary           after tax salary...