Since the first salary payment will be received three years from today, so we need to
discount thi
s for two years to find the value today, which will be:
PV = $1,424,719.72 / 1.065
2
PV = $1,256,117.37
So, the total value of a Wilton MBA is:
Value = –$68,341.82 – 127,002.35 + 9,125.17 + 1,256,117.37 = $1,069,898.38
Mount Perry MBA
:
Costs:
Total direct costs = $75,000 + 3,500 + 3,000 = $81,500. Note, this is also the PV of the
direct costs since they are all paid today.
PV of indirect costs (lost salary) = $37,000 / (1.065) = $34,741.78
Future Salary:
PV of after-tax bonus paid in 1 year = $10,000(1 – .29) / 1.065 = $6,666.67
After-tax salary = $78,000(1 – .29) = $55,380
His salary will grow at 3.5 percent per year. We must also remember that he will now only
work for 34 years, so the present value of his after-tax salary is:
ܸܲ
ൌ 55,380 ൦
1െ ቀ
1.035
1.065
ቁ
ଷସ
0.065 െ 0.035
൪ ൌ 1,147,258.87
Since the first salary payment will be received two years from today, so we need to discount
this for one year to find the value today, which will be:
PV = $1,147,257.88 / 1.065
PV = $1,077,237.44