Long-term investment ?decision-npv method

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Long-term investment ?decision, NPV method

Jenny Jenks has researched the financial pros and cons of entering into a? 1-year MBA program at her state university. The tuition and needed books for a? master's program will have an upfront cost of ?$51,000. If she enrolls in an MBA?program, Jenny will quit her current? job, which pays ?$50,000 per year after taxes? (for simplicity, treat any lost earnings as part of the upfront? cost). On? average, a person with an MBA degree earns an extra ?$22,000 per year? (after taxes) over a business career of 37 years. Jenny believes that her opportunity cost of capital is 6.5?%. Given her? estimates, find the net present value?(NPV) of entering this MBA program. Are the benefits of further education worth the associated? costs?

The following time line depicts the cash flows associated with this? problem:

(The image is a timeline that shows the cash flows associated with an MBA program. The timeline extends from Year 0 to Year 37. The cash flow from Year 0 to Year 37 is labeled Tuition (CF subscript 0). The timeline shows a negative cash flow of 101,000 dollars for Year 0. The timeline shows positive cash flows from Year 1 to Year 37. The cash flows for Year 1 to Year 37 is labeled Extra earnings and is 22,000 dollars each.)

Reference no: EM133118821

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