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Answer.1 While taking decision to continue the further studies, age plays one of the important factors. In this case, Ben is now 28 years old. He graduated from college six years ago i.e. at the age of 22. Assuming that Ben is already working for about 5 years since graduated from college, he has enough money from salary saving in 5 years to do his MBA at 28 years age. If he starts the MBA program at 28 years old, he will spend two years for study and perhaps finish his MBA at 30 years old. At 30 years old, he will start working again for 40 more years after getting the MBA. With these reasons, age affects his decision for getting an MBA.

Answer.2 There are many measurable reasons that ...view middle of the document...

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 the PV is = $ 937,474.28

Present Value (PV) of Growing Annuity.

PVGA = C (1 – ( (1+g)/(1+r))t / r – g )

PVGA= $44 400 (1 – ((1+3%)/(1+6.5%))40 / 6.5% - 3%)

PVGA = $44 400 (1 – ((1.03)/(1.065))40 / 0.035)

PVGA = $ 44 400 (1 – 0.261 / 0.035)

PVGA = $44 400 (0.739 / 0.035)

PVGA = $44 400 (21.114)

PVGA = $ 937,474.28

2. Getting the MBA at Wilton University

In this case, we must compute following four parts:

* PV of salary for 38 years (40 -2)

* PV of signing bonus

* PV of MBA cost for 2 years

* PV of 2 years salary when he would work at the money management firm

a. PV of salary for 38 years

The factors to consider are: Ben will receive a job offer for about $110,000 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 %.

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 the PV is = $ 1,806,116.4

Present Value (PV) of Growing Annuity.

PVGA = C (1 – ( (1+g)/(1+r))t / r – g )

PVGA = $75 900 (1 – ( (1+4%)/(1+6.5%))38 / 6.5% - 4%)

PVGA = $75 900 (1 – ((1.04)/(1.065))38 / 0.025)

PVGA = $75 900 (1 – (0.9765)38 / 0.025)

PVGA = $75 900 (1 – (0.40508) / 0.025)

PVGA= $75 900 (0.5949/0.025)

PVGA = $75 900 (23.796)

PVGA = $ 1,806,116.4

b. PV of signing bonus

The factors to consider are:

Signing bonus = $ 20,000

R (discount rate) = 6.5%

T (the number of period working) = 38

So the PV is = $17,633.57

PV = FV / (1+ r)t

PV = $20 000 / (1.065)38

PV = $20 000 / 1.1342

PV = $17,633.57

c. PV of MBA cost for 2 years

The factors to consider are: tuition $65,000, Books and other supplies are estimated to cost $3000 per year. Health insurance plan that will cost $3,000 per year, room and board expenses will cost $2,000.

Cost = $65 000 + $3000 + $3000 + $2000 = $ 73 000

R (discount rate) = 6.5%

T (the number of period studying) = 2

So the PV is = $ 132,860

Present Value (PV) of Annuity:

PVA = c ( 1 – (1/(1+r)t / r )

PVA = $73 000 ( 1 – (1/(1.065)2 / 6.5%)

PVA = $73 000 ( 1 – (1/1.1342 / 0.065)

PVA = $73 000 (1 – 0.8817 / 0.065)

PVA = $73 000 (0.1183 / 0.065)

PVA = $73 000 (1.82)

PVA = $ 132,860

d. PV of 2 years salary when he would work at the money management firm

The factors to consider are: His annual salary at the firm is $60,000 per year, and his salary expected to increase at 3 % per year until retirement, his current average tax rate is 26 % and discount rate is 6.5 percent.

Salary = $60,000, tax rate = 26%, because of tax rate, c = $44,400

R (discount rate) = 6.5%

G...

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