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Assignment 1 Managerial Finance 650 Ashford

944 words - 4 pages

Assignment 1
Closing Case Chapter 4- MBA Decision
Keith C. Quarles
Managerial Finance
Robert Watson
3-26-12


1 Age can play a significant part in the decision whether to keep working or go back to school. A young person can go back to school and still have time to chase a career whereas an older person would have a smaller window of opportunity and may not as willing to chance giving up their livelihood to get a degree. The opportunity costs of leaving the job may be equated in the coming years after graduating considering the added value to the marketability of the student once a degree is attained as reflected in a higher base salary than the previous job which would make the ...view middle of the document...

12

Next for the lost salary's opportunity costs;

Pv o f lost salary=$40,700/( 1 . 0 6 5 )
+$40,700( 1 + 0 3 )/( 1+.065) 2
= $75,176.00

The increase is the present value of his future salary , plus bonus which is:


Present value of after tax bonus paid in 2 years= $ 20,000 (1.31) / 1.0652

=$12, 166.90

After ta x salary = $100,000 (1 -. 3 1 ) = $69,000

His salary will grow a t 4 percent per yea r but he will only work 38 years. His present value of his after tax salary is :

Pv =$1,640,84. 35

First salary payment is three years from today so we discount for two years to get this value as follows :

P v = $1,640,843.35/ 1.0652
Pv =$1,446,664.77

The total value of a Wilton M.B.A. = $140,575.12 - 75,160 +12,166. 90 +1,446,664.77=$1,246,958.48

Mount Perry MBA :

Total direct costs = $75,000 +3,500+3,000 + 2,000 = $83,500 when paid today which makes it the direct cost present value also.

P v of indirect costs (lost salary)=$40,700 /(1.065)=$38,215.96
Next we compute his salary::

Pv of after tax bonus paid in 1 year= $16,000 (1- .29 ) /1.065=$10,666.67

Aftertax salary=$88,000(1-.29 )= $62,480

His salary will increase at 3.5 percent/yr sand he will work for 39 years thus the present value of his aftertax salary is::
Pv = $1,399, 292.27

That is the first year salary but the first salary payment is in two years so we discount for one year to find today's value as follows :

Pv =$1,399,292.27...

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