A prospective MBA student earns $55,000 per year in her current job and expects that amount...

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A prospective MBA student earns $55,000 per year in hercurrent job and expects that amount to increase by 7% peryear.
She is considering leaving her job to attend businessschool for two years at a cost of $40,000 per year.
She has been told that her starting salary after businessschool is likely to be $100,000 and that amount will increase by10% per year.
Consider a time horizon of 10 years, use a discount rate of13%, and ignore all considerations not explicitly mentionedhere.
Assume all cash flows occur at the start of each year(i.e., immediate, one year from now, two years from now,..., nineyears from now).
Also assume that the choice can be implemented immediatelyso that for the MBA alternative the current year is the first yearof business school.
What is the net present value of the more attractivechoice?
Please round your answer to the nearestdollar.

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4.2 Ratings (772 Votes)

NPV of the more attractive choice which is to pursue the See Answer

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Transcribed Image Text

A prospective MBA student earns $55,000 per year in hercurrent job and expects that amount to increase by 7% peryear.She is considering leaving her job to attend businessschool for two years at a cost of $40,000 per year.She has been told that her starting salary after businessschool is likely to be $100,000 and that amount will increase by10% per year.Consider a time horizon of 10 years, use a discount rate of13%, and ignore all considerations not explicitly mentionedhere.Assume all cash flows occur at the start of each year(i.e., immediate, one year from now, two years from now,..., nineyears from now).Also assume that the choice can be implemented immediatelyso that for the MBA alternative the current year is the first yearof business school.What is the net present value of the more attractivechoice?Please round your answer to the nearestdollar.

A prospective MBA student earns $55,000 per year in hercurrent job and expects that amount to increase by 7% peryear.
She is considering leaving her job to attend businessschool for two years at a cost of $40,000 per year.
She has been told that her starting salary after businessschool is likely to be $100,000 and that amount will increase by10% per year.
Consider a time horizon of 10 years, use a discount rate of13%, and ignore all considerations not explicitly mentionedhere.

Assume all cash flows occur at the start of each year(i.e., immediate, one year from now, two years from now,..., nineyears from now).
Also assume that the choice can be implemented immediatelyso that for the MBA alternative the current year is the first yearof business school.
What is the net present value of the more attractivechoice?

Please round your answer to the nearestdollar.