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Calculate NPV and PV of MT Perry

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INPUT OUT PUT
55000 Current salary Current job Calculate and show formulas
40 Years until retirement After Income
0.03 Salary increase
0.26 Tax rate Present value of salary

Wilton Wilton MBA
65000 Tuition per year PV of tuition & expenses
2500 Books & Supplies
100000 Starting salary PV of lost salary
20000 Signing bonus
0.04 Salary increase Aftertax bonus
0.31 Tax rate
PV of bonus
Mount Perry
75000 Tuition per year Aftertax salary
3500 Books & Supplies
16000 Signing bonus PV of salary in two years
88000 Starting salary
0.035 Salary increase Value of salary today
0.29 Tax rate
PV of attending Wilton
Both schools
3000 Health insurance Mount Perry MBA
2000 Room & board increase PV of tuition & expenses

Discount rate 6.50% PV of lost salary

PV of signing bonus

Aftertax bonus

Aftertax salary

PV of salary in one year

Value of salary today

PV of attending MT Perry

Current job PV minus bonus after Wilton costs

Value in 2 years

Aftertax beginning salary

Pretax beginning salary

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Solution Summary

The expert calculates the NPV and PV of MT Perry.

$2.19
Similar Posting

1. How does Ben's age affect his decision to get an MBA?

2. What other, perhaps nonquantifiable factors, affect Ben's decision to get an MBA?

3. Assuming all salaries are paid at the end of each year, what is the best option for Ben, from a strictly financial standpoint?
4. In choosing between the two schools, Ben believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement?

5. What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position? Assume his tax rate after graduating from Wilton University will be 31 percent regardless of his income level.
6. Suppose, instead of being able to pay cash for his MBA, Ben must borrow the money. The current borrowing rate is 5.4%. How would this affect his decision to get an MBA?

Finance Problem: Ben Bates and his MBA
Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become and investment banker. He feels that a MBA degree would allow him to achieve his goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program.

Ben currently works at the money management firm of Dewey and Louis. His annual salary at the firm is $55,000 per year, and his salary is expected to increase at 3% per year until retirement. He is currently 28 years old and expects to work for 40 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26%. Ben has a savings account with enough money to cover the entire cost of his MBA program.

The Ritter College of Business at Wilton University is one of the top MBA programs in the country. The MBA degree requires two years of full-time enrollment at the university. The annual tuition is $65,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $2500 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $100,000 per year with a $20,000 signing bonus. The salary at this job will increase at 4% per year. Because of the higher salary, his average income tax rate will increase to 31%.

The Bradley School of Business at Mount Perry College began its MBA program 16 years ago The Bradley School is smaller and less well known than Ritter College. Bradley offers an accelerated, one year program, with a tuition cost of 75,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $3,500. Ben thinks that he will receive an offer of $88,000 per year upon graduation, with a $16,000 signing bonus. The salary at this job will increase 3.5% per year. His average tax rate at this level of income will be 29%.

Both schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Ben also estimates that room and board expenses will cost $2,000 per year at both schools. The appropriate discount rate is 6.5%. Assume all salaries are paid at the end of the year.

Working Wilton Mount Perry
$55,000 $100,000, $88,000
Expected increase: 4% 3.5%
Work: 35 years
Tax Rates 26% 31%
Annual tuition $65,000 $75,000
Books and other supplies: $2,500 $3,500
Programs: 2 years 1 year
Signing Bonus: $20,000 $16,000
Health Insurance: $3,000 $3,000
Room and board: $2000/yr $2,000

1. How does Ben's age affect his decision to get an MBA?

2. What other, perhaps nonquantifiable factors, affect Ben's decision to get an MBA?

3. Assuming all salaries are paid at the end of each year, what is the best option for Ben, from a strictly financial standpoint?
4. In choosing between the two schools, Ben believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement?

5. What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position? Assume his tax rate after graduating from Wilton University will be 31 percent regardless of his income level.
6. Suppose, instead of being able to pay cash for his MBA, Ben must borrow the money. The current borrowing rate is 5.4%. How would this affect his decision to get an MBA?

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