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 5% per year and that the discount rate is 8%. What is the 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.

Answer rating: 100% (QA)

PRESENT VALUE OF ORDINARY ANNUITY 1 1 PV FV 1 n Present Va... View the full answer