Jerry is deciding whether to go back to school for an MBA

degree. His current job pays $27,000 a year, with a bonus of $3,000 after 2 years. If he goes

back to school, he would have to quit his job and go to school full-time for 3 years, where

tuition is $19,000 a year (paid at the start of each fall semester). Upon completion of the

degree, he also expects to land a new job making $130,000 a year. Either way, he plans on

retiring in 7 years.

a) If the interest rate is 9%, calculate the present value of each option. If all Jerry cares

about is money, what should he do?

NOTES: DO b) ONLY. Answer for a) is PV current job: 138,414.77 and PV back to school: 268,215.56

b) After hearing that you are thinking about quitting, your boss offers you a bonus at

the end of four years. How large would the bonus have to be to alter your decision?