DB14 – Capital Investment Analysis
For this week’s discussion, consider the following:
A Masters of Accountancy degree at Central University costs $12,000 for an additional fifth year of education beyond the bachelors degree. Assume that all tuition is paid at the beginning of the year. A student considering this investment must evaluate the present value of cash flows from possessing a graduate degree versus holding only an undergraduate degree. Assume that the average student with an undergraduate degree is expected to earn an annual salary of $50,000 per year (assumed to be paid at the end of the year) for 10 years. Assume that the average student with a graduate Masters of Accountancy degree is expected to earn an annual salary of $66,000 per year (assumed to be paid at the end of the year) for 9 years after graduation. Assume a minimum rate of return of 10%.
(1) Determine the net present value of cash flows from an undergraduate degree. Use the present value table provided below.
(2) Determine the net present value of cash flows from a Masters of Accountancy degree, assuming that no salary is earned during the graduate year of schooling.
