in his salary after his MBA is completed. Suppose that the post-graduation salary increases at a 5% per year and that the discount rate is 8%. What is minimum expected starting salary after graduation that makes going to a business school a positive-NPV investment for Michael? For simplicity, assume that all cash flows occur at the end
Michael Scott is 30 years old at the beginning of the year and is thinking about getting an MBA. Michael is currently making $40,000 per year and expects the same for the remainder of his working years (until age 65). If he goes to a business school, he gives up his income for two years and, in addition, pays $20,000 per year for tuition. In return, Michael expects an increase in his salary after his MBA is completed. Suppose that the post-graduation salary increases at a 5% per year and that the discount rate is 8%. What is minimum expected starting salary after graduation that makes going to a business school a positive-
![FORMULA LIST
Future Value (Single Cash Flow) [FV]:
FVn = PV (1 + r)" or PV(1+)
or PVeN
Present Value (Single Cash Flow) [PV]:
FV
FV
PVn = FV/(1 + r)" or
or
Future Value (Annuity) [FV]:
FVh= CF(*"-)
Present Value (Annuity) [PV]:
Future Value (Annuity Due) [FV]:
FV, = CF(* -) (1+r)
Present Value (Annuity Due) [PV]:
PV, = CF(*")(1+r)
Present Value of Perpetuity[PV]:
PV = CF/r or CF (1+g) / (r - g)
Annuity Amount [PMT]:
- ((+ r"
CF or PMT = FV / (*" --) or PV/ E)
Interest rate (derivation using lump sum formula) [r]:
r= enn-1
Time Period in years [n]:
In
n =
In (1+r)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7a183d6a-afaa-4eea-9907-165a59630752%2F6375df8e-2630-46cf-ab53-430dd1901df9%2Fui06ij_processed.png&w=3840&q=75)
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