future years he will be working before his retirement the longer he takes to

# Future years he will be working before his retirement

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future years he will be working before his retirement, the longer he takes to finish his studies the lesser he gets to work and make money. Raj is already 28 years old and is only planning to work till the age of 30. Moreover, it will take 2 years for him to complete his MBA programme and he will only be able to work for 8 years after finishing MBA. 2. Other factors: - The Value of the MBA Program he is doing - Duration of the program - If he has a family, it’s very difficult to meet the day to day expenses without a job. 3. Best option for Raj: - CHOICE 1: If he remains at his current job: Average salary = 53000 (1-.26) = \$39220 Growth at 3% => PV = C {1- (1+g) / (1+r) t } / r-g PV = 39220 {1-[(1+.03) / (1+.065)] 38 } / (.065-.03) PV= \$805,819.07 - CHOICE 2: Sentinel MBA PV of direct cost = 58000 + 2000 + 3000 = \$63000 PV of direct cost = 63000+63000 / 1.065 = \$118309.86 Indirect Cost (lost salary) => 39220/(1.065)+39220(1.03)/(1.065) 2 = \$72442.33 PV of reduced Room + Board => 4000+4000 /1.065 =\$7755.87 Salary: PV of after-tax bonus paid in 2 years 10000(1-.31)/(1.065) 2 = \$6083.45 Therefore, after tax salary => 87000(1-.31) =\$60,030 Salary will grow at 4% PV of 60030 {1-[(1+.04)/(1.065)] 36 } / (.065-.04) PV= \$1380160.20 PV = 1380160/ (1.065) 2
PV = \$1216831.05 Value => 72442.33-122154.33+7755.87+6083.45+1380160.20 =\$1588596.48 - CHOICE 3: Ponds MBA Tuition cost = 75000 , Book =4200 Total = 79200 Indirect cost = PV = 39220/1.065= \$36826.29 PV of Room and board = 7755.87 Salary after tax Raj would receive if he went to ponds: 78000(1-0.29) = \$55380 Salary grows @3.5% PV = C/(r-g) *{1-[(1+g)/(1+r)] 37 =>55380/ (0.065-.035) * {1-[(1+0.35)/(1+0.065)] 37 } PV =\$1131135.01 PV = 113135.01/(1+0.065) =\$1232990.62 Therefore, the best option for Raj is to get an MBA from Sentinel. 4. Current job: Growing annuity present value = \$805,819.07 MBA at Sentinel: Growing annuity present value = \$1216831.05 MBA at Ponds: Growing annuity present value =\$1131135.01 Present value gives better estimate than future value because it will show the worth of his money currently. 5. Staying in his current position, PV = \$937,474.28 Getting the MBA at Sentinel University, PV = \$ 1,804,927.68 When PV (current job)=PV(Sentinel) 21,06x = \$75,900 * 23,78
21,06x= \$ 1 806 116.4 x = \$85,760.51 6. Sentinel: Loan amount : \$146,000 Interest rate : 5, 4% Long term : 5 Loan payment : \$ 34.096,06 The total payment in five years is \$170.580,30. Then, when we calculated the present value

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• Fall '14