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

Question

Long-term investment decision, NPV methodJenny 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 $23,000 per year (after taxes) over a business career of 39 years. Jenny feels that her opportunity cost of capital is 6.3%. Given herestimates, find the net present value (NPV) of entering this MBA program. Are the benefits of further education worth the associated costs?

The net present value (NPV) of entering this MBA program is $

(round to the nearest dollar)

Explanation / Answer

Cost of MBA program = $ 104,000

Extra income after taxes from MBA education = $ 23,000

Number of years of earning(nper) = 39 years

Opportunity Cost of capital = 6.3%

NPV of entering MBA program = -104,000 + PV(6.3%,39,23000) = -104,000 + 331,382. 46 = $ 227,382.46

As NPV of the program is positive, the benefits outweigh the costs of MBA education for Jenny.

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