MANAGERIAL FINANCE plz help!!
posted by Natacha .
Hi, i need some help on my managerial finance course.
You are 25 and just about to graduate from college. You are considering whether to go to Business School right after college or take the job that you have been offered. Being finance major, you reckon that in order to make the most optimal decision you need to do a financial analysis of the two options available to you. The salary offer for your new job is $70,000 which is expected to grow at the rate of 3% per annum. MBAs typically make around $95,000 upon graduation, with salaries growing at a rate of 4% per annum. The MBA program costs $20,000 per year in tuition, payable at the end of each year of study. You hope to retire when you reach age 60. Your relevant discount rate is 7.5%. Using the above information and Excel modeling, please answer the following questions:
a. Is it worthwhile for u to decline the job offer and go straight to school?
b. What is the internal rate of return for the MBA program?
c. What rate of return would make you indifferent between the 2 options?
Think it through,
In Excel, calculate the present value of the income stream till age 60 under both options.
A coupla a complications to think about. First, I personally would think that tuition costs ought to be paid for with borrowed money. So, I would add borrowing costs to the MBA tuition. Second, I might think about factoring in some probability of dying. Third, I might think about adding some risk probabilities.