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What is minimum expected starting salary

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Question: Michael is 30 yrs. old at the beginning of the year and is thinking about getting an MBA. He 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-NPV investment for Michael? For simplicity, assume that all cash flows occur at the end of each year.

Reference no: EM132780021

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