ff2 John is 29 years old (just had his 29th birthday party) and is thinking about getting an MBA degree. He iscurrently making $60000 per year and expects the same for the remainder of his working years. John is planningto retire when he turns 65. If he decides to go to a business school, it will take him two years to get the degree.During these two years, he gives up his income and, in addition, pays $65000 in tuition each year. In return,John expects that his post-graduation salary will increase at 4% per year. Assume that John can enroll into theprogram immediately, i.e., in Year 0. The first tuition payment is due in Year 1, and the second payment is due inYear 2. If John does not enroll into the program, the he will receive his first salary ($60000) in Year 1. If Johnenrolls, he will get his first salary one year after he graduates, i.e., in Year 3.Assume that John's salary has the same risk regardless of whether he obtains an MBA degree and that hisexpected future salary income should be discounted at 9% per year. Assume that the risk-free discount rate is4% per year.(a) What is the present value of Mike's salary income if he chooses not get an MBA degree?(b) What is the present value of the MBA tuition cost?(c) What is the minimum expected starting salary after graduation that makes getting MBA degree worth it?

Present value is equivalent today of the future cash flows that are going to be received based on…

ohn is 29 years old (just had his 29th birthday party) and is thinking about getting an MBA degree. He is urrently making $60000 per year and expects the same for the remainder of his working years. John is pla o retire when he turns 65. If he decides to go to a business school, it will take him two years to get the degr uring these two years, he gives up his income and, in addition, pays $65000 in tuition each year. In return, ohn expects that his post-graduation salary will increase at 4% per year. Assume that John can enroll into t rogram immediately, i.e., in Year O. The first tuition payment is due in Year 1, and the second payment is du Year 2. If John does not enroll into the program, the he will receive his first salary ($60000) in Year 1. If John nrolls, he will get his first salary one year after he graduates, i.e., in Year 3. ssume that John's salary has the same risk regardless of whether he obtains an MBA degree and that his xpected future salary income should be discounted at 9% per year. Assume that the risk-free discount rate

ohn is 29 years old (just had his 29th birthday party) and is thinking about getting an MBA degree. He is urrently making $60000 per year and expects the same for the remainder of his working years. John is pla o retire when he turns 65. If he decides to go to a business school, it will take him two years to get the degr uring these two years, he gives up his income and, in addition, pays $65000 in tuition each year. In return, ohn expects that his post-graduation salary will increase at 4% per year. Assume that John can enroll into t rogram immediately, i.e., in Year O. The first tuition payment is due in Year 1, and the second payment is du Year 2. If John does not enroll into the program, the he will receive his first salary ($60000) in Year 1. If John nrolls, he will get his first salary one year after he graduates, i.e., in Year 3. ssume that John's salary has the same risk regardless of whether he obtains an MBA degree and that his xpected future salary income should be discounted at 9% per year. Assume that the risk-free discount rate

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter14: Planning For Retirement

Section: Chapter Questions

Problem 2FPE

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Question

ff2

John is 29 years old (just had his 29th birthday party) and is thinking about getting an MBA degree. He is
currently making $60000 per year and expects the same for the remainder of his working years. John is planning
to retire when he turns 65. If he decides to go to a business school, it will take him two years to get the degree.
During these two years, he gives up his income and, in addition, pays $65000 in tuition each year. In return,
John expects that his post-graduation salary will increase at 4% per year. Assume that John can enroll into the
program immediately, i.e., in Year 0. The first tuition payment is due in Year 1, and the second payment is due in
Year 2. If John does not enroll into the program, the he will receive his first salary ($60000) in Year 1. If John
enrolls, he will get his first salary one year after he graduates, i.e., in Year 3.
Assume that John's salary has the same risk regardless of whether he obtains an MBA degree and that his
expected future salary income should be discounted at 9% per year. Assume that the risk-free discount rate is
4% per year.
(a) What is the present value of Mike's salary income if he chooses not get an MBA degree?
(b) What is the present value of the MBA tuition cost?
(c) What is the minimum expected starting salary after graduation that makes getting MBA degree worth it?

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