Please explain without using PVIFA in equation. Long-term investment decision, N
ID: 2462195 • Letter: P
Question
Please explain without using PVIFA in equation.
Long-term investment decision, NPV method Jenny Jenks has researched the financial pros and cons of entering into a 1-year MBA program at her state university. The tuition and books for the master's program will have an up-front cost of dollar 50,000. If she enrolls in an MBA program, Jenny will quit her current job, which pays dollar 50,000 per year after taxes (for simplicity, treat any lost earnings as part of the up-front cost). On average, a person with an MBA degree earns an extra dollar 20,000 per year (after taxes) over a business career of 40 years. Jenny believes that her opportunity cost of capital is 6 percent. Given her estimates, find the net present value (NPV) of entering this MBA program. Arc the benefits of further education worth the associated costs?Explanation / Answer
Cost of MBA program $50,000
Annual incremental benefit $ 20,000
Time frame (years) 40
Opportunity cost 6.0%
PVIFA 15.0463
PVA $ 300926
NPV $250,926 (300926-50000)
The financial benefits outweigh the cost of the MBA program. P9