final project paper

final project paper - Alex Gase ACC 333 Project Executive...

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Alex Gase ACC 333 Project Executive Summary The main objective of this project was to numerically investigate two options in a big decision in my life and then use that analysis to render a decision. I have always wanted to go to law school, but I was always uncertain of where. So the decision I decided to explore was which law school to go to. I narrowed my list of viable schools down to two: College of William and Mary and University of Pittsburgh. This analysis quantitatively investigated the benefits of each school through four methods: Net Present Value, Internal Rate of Return, Accrual Accounting Rate of Return, and Payback Method. I deduced that since it would not logically make sense to depreciate education I was unable to create an analysis using the Accrual Accounting Rate of Return because there is no difference between my cash flows and my “financial statement” income. Using the other three methods I tracked cash outflows over the 3 year law school period and then cash inflows (salaries) from the law school investment over a five year period following law school. When analyzing these two options I had to make some assumptions in order to yield results. For instance, I assumed that I will be accepted by admissions at both of these schools upon application. Also, I had to assume an income tax bracket to complete my cash flow analysis. Although my income levels (from the future salaries) are shown to be in the 28% bracket, I have to take into consideration any debt I hold as well as any deductions and exclusions I may claim. For simplicity reasons and to not create a tax project I kept a constant 25% marginal tax rate for both options. I also assumed that I would receive pay increases in my
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salary over the five year period (i.e. assuming I will have a good job performance). I had to assume a rate, which was 2.9%, the deemed 2011 estimated national average in annual salary increases (Miller, 2010). Finally, I will also assume a cost of living for each city I decide to work in. Under that assumption I will also assume that my cost of living is not a deduction from my taxable income thus it will be subtracted from my after-tax cash flows. Using those assumptions and research done on both of these schools’ costs and average starting salaries I was able to calculate the NPV, IRR, and the Payback period. In all three analyses College of William and
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final project paper - Alex Gase ACC 333 Project Executive...

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