The Mba Decision

The MBA Decision
NPV Options for Ben:
1. Keep Working
Salary = $60,000, tax rate = 26%, because of tax rate, c = $44,400 R (discount rate) = 6.5% G (growth rate) = 3% T (the number of period working) = 40 So :
Present Value (PV) of Growing Annuity.
PVW = C ((1 – ( (1+g)/(1+r))t)/ r – g )
PVW= $44 400 ((1 – ((1+3%)/(1+6.5%))40)/ 6.5% - 3%)
PVW = $44 400 ((1 – (1.03/1.065)40)/ 0.035)
PVW = $ 44 400 ((1 – 0.2627) / 0.035)
PVW = $44 400 (0.7373 / 0.035)
PVW = $44 400 (21.066)
PVW = $ 935,317.71

2. MBA 1 – Wilton Uni
Cash Outflow (Investment):
Cost = $65 000 + $3000 + $3000 + $2000 = $ 73,000
(Payable in each beginning of the year)
R (discount rate) = 6, 5%
T (the number of period studying) = 2
So :
Present Value (PVA) = PV0 (tuition etc paid now) + PV1 (tuition etc paid beginning next year)
PVA = $73,000 + $73,000/(1+6.5%)
PVA = $73,000 + $68,544.6
PVA = $ 141,544.6

Opportunity lost (intangible):
Salary = $60,000, tax rate = 26%, because of tax rate, c = $44,400
R (discount rate) = 6.5%
G (growth rate) = 3%
T (the number of period working) = 2
So :
Present Value (PV) of Growing Annuity.
PVOL = C ((1 – ( (1+g)/(1+r))t )/ r – g )
PVOL = $44 400 ((1 – ((1+3%)/(1+6.5%))2)/ 6.5% - 3%)
PVOL = $44 400 ((1 – (1.03/1.065)2)/ 0.035)
PVOL = $44 400 ((1 – 0.9353)/ 0.035)
PVOL = $44 400 (0.0647/0.035)
PVOL = $44 400 (1.8486)
PVOL = $82,076.51

Total CO: $ 141,544.6 + $82,076.51 = $ 223,621.11

Cash inflow:
Salary = $110,000, tax rate = 31%, so, C = $75,900
R (discount rate) = 6, 5%
G (growth rate) = 4%
T (the number of period working) = 38 (40 years – 2 years)
So :
Present Value (PV) of Growing Annuity at the year 2.
PVNJA = (C ((1 – ((1+g)/(1+r))t)/r – g) by end of year 2) then calculated 2 years to present
PVNJA = $75 900 ((1 – ( (1+4%)/(1+6.5%))38)/ 6.5% - 4%) /(1+6.5%)2
PVNJA = $75 900 ((1 – (1.04/1.065)38)/ 0.025) / 1.134225
PVNJA = $75 900 ((1 – (0.9765)38)/