Long-term investment decision, NPV method Jenny Jenks has researched the financi

Question

Long-term investment decision, NPV method Jenny Jenks has researched the financial pros and cons of entering into a 1-year MBA program at her state university. The tuition and needed books for a master's program will have an upfront cost of $104,000. On average, a person with an MBA degree earns an extra $20,000 per year after taxes over a business career of 38 years. Jenny feels that her opportunity cost of capital is 6.7%. Given her estimates, find the net Posent value (NPV)of entering this MBA program. Are the benefits of further education worth the associated costs? The following time line depicts the cash flows associated with this problem: 38 Tuition (CFo) $104,000 Extra earnings $20,000 $20,000$20,000 The net present value (NPV of entering this MBA program is S? (Round to the nearest dollar)

Explanation / Answer

Solution:

Initial investment in MBA program = $104,000

Incremental benefits over 38 years = $20,000

Present value of benefits = $20,000 * cumulative PV Factor at 6.7% for 38 periods

= $20,000 * 13.65574 = $273,115

NPV of entering this MBA program = PV of cash inflows - Intitial investment = $273,115 - $104,000 = $169,115

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.