You are considering enrolling in a 2-year long MBA program. You will continue your current employment. If
Question:
You are considering enrolling in a 2-year long MBA program. You will continue your current employment. If you do, you must pay two payments of $30,000; the first happens today, at the beginning of the program, and the second is due 1 year from today, at the beginning of the second year. Because of this advanced degree, you expect your annual earnings stream will increase; this increase will occur after you complete the 2-year program. You plan on working for 30 years after you graduate. Remember that in capital budgeting, we assume that cash flows from the operations/activity happen at the end of the year.
To finance this program, you will withdraw money from your investments which is earning an average of 8%. Thus, you have decided that any use of these funds should earn at least 8%.
What is the annual increase in earnings necessary to make this investment worthwhile? This annual increase in earnings can be treated as an annuity.
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill