Net present value of decision


Vivian has just graduated from the University of Michigan with a BBA and must decide whether to start working now or to get an MBA. In either case, she intends to retire 20 years from today. An MBA requires an expenditure/tuition of $60,000 per year for each of the next two years, and Vivian will start working immediately after getting her MBA. Her discount rate for valuing cash flows is 7% per year. Assume that cash inflows occur at the end of the year, while the cash outflows (tuition payments) occur at the beginning of the year. If she goes to work now, she can expect a salary of $50,000 per year for each of the next 20 years. If she gets an MBA, her salary will be a constant $100,000 per year. What is the net present value (NPV) of her decision if Vivian decides to do an MBA?

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Finance Basics: Net present value of decision
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