Professional Documents
Culture Documents
1)
Tution fees
Books and supplies
Health insurance
Room & board expenses
Expected salary
Growth rate(Salary)
Bonus
Average tax rate
Discount rate
65000
3%
26%
6.5%
Ritter college(1
yr)
70000
3000
3000
2000
110000
4%
20000
31%
6.5%
Based on the information above we can find a timing that going to a B-school is
Considering he will retire at 68 and after T years it will be worse for him to get a
begining of T+1 years so that we can get T.
Considering different casesCase1:
NPV=
0.74*{65000*1.03^T/0.065-0.03*[1-(1+0.03/1+0.0
Case2:
NPV=
0.69*(((110000/(0.065-0.04))*(1-((1+0.04)/(1+0
Case3:
NPV=
0.71*{92000/0.065-0.035*[1-(1+0.035/1+0.065)^3
T
9
10
11
12
13
NPV1
1156734.0656
1169162.1897
1180515.3542
1190667.203
1199481.4726
NPV2
1208708.6902
1176398.6547
1143311.9357
1109429.8628
1074733.317
Based on the table above when T=10, at the beginning of year 11 the NPV1 will
be higer than NPV2. We can draw a conclusion that after 10yrs which means afte
after 13 yrs which means after 41 years old, going to ritter college wont get a hi
possible.
BA?
Mount perry
college(1 yr)
85000
4500
3000
2000
92000
3.50%
18000
29%
6.5%
ng that going to a B-school is not a good deal because the NPV of future cash flows would be lower than the cur
will be worse for him to get an MBA compared with continuing his current job. Comparing the NPV of 3 years at
he current job
0.065-0.03*[1-(1+0.03/1+0.065)^(40-T)]}
065-0.04))*(1-((1+0.04)/(1+0.065))^38-T))/(1+0.065)^2)+20000/(1+0.065)^2-73000/(1+0.065)-73000
035*[1-(1+0.035/1+0.065)^39-T]/(1+0.065)^2}+18000/(1+0.065)-89500
NPV3
1104289.7402
1079143.1862
1053267.7466
1026642.2942
999245.08965
ning of year 11 the NPV1 will be higher than NPV3 when T=13, at the beginning of year 14, the NPV1 will
after 10yrs which means after 38yrs old, going to the bradley school wont be get a higher payoff, and
to ritter college wont get a higher payoff, and before 38yrs old, it is better to pursue MBA aas earlier as
2-73000/(1+0.065)-73000
Current Position
Age
28
Work Life
40
Position
Salary
Current Position 65,000
Signing Bonus
Salary hike
0
3%
Witon- Ritter
College
20,000
4%
18,000
3.50%
110,000
Answer 4:
From the FV value calculation it is
evident that the best option for him to
choose is Wilton-Ritter
ANSWER 5:
Annuity
factor
forBen
present
position
Salary (after
tax)
needs
to receive now to be
indifferent to attending Wilson
26%
Health
Insurance
included?
yes
Money in Hand
Course
(minus tax)
Duration
48,100
NA
NA
31%
yes
75,900
140,000
29%
yes
65,320
85,000
Tax Rate
Tution Fees
Assuming salary paid at end of each period and tax paid on bonus
Position
Salary
Current Position 1013224
Witon- Ritter Scho1804928
Bradley School
present value of
preset value of present value salary Including
salary
of bonus
Bonus
1013224
1,013,224
1591331
11,424
1,602,756
1462896
1,373,612
11,268
1,384,879
Assuming salary paid at end of each period and NO tax paid on bon
1013224
1591331
17633
1608964
Bradley School
1,373,612
16901
1,390,513
1462896
19.7
Calculated using annuity growth formula
73,996.19
Education Expenses
Books &
Discount
Supp.
Health Insur.
Board & Lodge
Rate
NA
NA
NA
6.50%
Total
Expences
6,000
6,000
4,000
6.50%
156,000
151,239
4,500
3,000
2,000
6.50%
94,500
94,500
94,500
1,290,379
d and NO tax paid on bonus
future value
12580261.9221
18022132.434
16021445.65072
151,239
1,013,223.78
12,580,261.92
###
###
94,500
1,296,013
16091395.3664
Remaining
Work Life
38
39
Question 6
The MBA Decision
Current Position
Age
28
Work Life
40
Position
Salary
Signing
Bonus
Current
Position
65,000
Ritter
College
110,000
20,000
Bradley
School
92,000
18,000
Hike
Tax Rate
Health
Course
Insurance Money in Hand Duration Tution Fees
3%
26% yes
48,100
4%
31% yes
75,900 2
140,000
3.50%
29% yes
65,320 1
85,000
Current Position
Ritter School
Bradley School
NA
present
value of
present
salary
value of
Including
PV of salary
bonus
Bonus
1013224
1,013,224
1804928 1591331.2473 11424.317 1,602,756
1462896 1373611.7012 11267.606 1,384,879
Education Expense
Books &
Supp.
Health
Insur.
Board &
Lodge
NA
Discount Rate
Total
Present
Value
Remaining
Work Life
6.50%
6,000
6,000
4,000
6.50%
156,000
151,239
38
4,500
3,000
2,000
6.50%
94,500
94,500
39
total
interest
paid on
loan
12,863
5,103
net
present
Net Present
value
Value
Less Edu
after
Exp.
interest
0 1013223.7760013 1,013,224
148,880
151,239
1,451,516 1,302,636
93,524
94,500
1,290,379 1,196,855
present
value of
education
loan
interest
rate
5.4%
5.4%