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 $100,000. On average, a person with an MBA degree earns an extra $20,000 per year (after taxes) over a business career of 40 years. Jenny feels that her opportunity cost of capital is 6.3%. Given her estimates, find the net present 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: The net present value (NPV) of entering this MBA program is . Are the benefits of further education worth the associated costs

Explanation / Answer

Present Value of Inflows = $20,000 * Annuity Factor at 6.3% for 40 years = $20000*14.49476 = $289,895 MBA Cost = $100,000 NPV of entering into MBA Program = $289,895 - $100,000 = $189,895

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