Long-term investment decision, NPV method Jenny Jenks has researched the financial pros and cons of entering into a 1-year MBA program at her state university. The tuition and needed books for a master's program will have an upfront cost of $52,000. If she enrolls in an MBA program, Jenny will quit her current job, which pays $50,000 per year (for simplicity, treat any lost earnings as part of the upfront cost). On average, a person with an MBA degree earns an extra $21,000 per year over a business career of 36 years. Jenny believes that her opportunity cost of capital is 5.9%. Given her estimates, find the net present value (NPV) of entering this MBA program. Are the benefits of further education worth the associated costs? The following time line depicts the cash flows associated with this problem: 2 36 Tuition (CF) - $102,000 Extra earnings $21,000 $21,000 $21,000 The net present value (NPV) of entering this MBA program is $. (Round to the nearest dollar.) Are the benefits of further education worth the associated costs? (Select the best answer below.) O Yes, the benefits of further education are worth the associated costs. Since the net present value (NPV) of entering this MBA program is greater than $0, Jenny will earn a return greater than her opportunity cost of capital. This decision will increase Jenny's wealth by an amount equal to the NPV. O No, the benefits of further education are not worth the associated costs. The net present value (NPV) of entering this MBA program is less than $0, this means Jenny will earn a return lower than her opportunity cost of capital. This decision will decrease Jenny's wealth by an amount equal to the NPV.
Long-term investment decision, NPV method Jenny Jenks has researched the financial pros and cons of entering into a 1-year MBA program at her state university. The tuition and needed books for a master's program will have an upfront cost of $52,000. If she enrolls in an MBA program, Jenny will quit her current job, which pays $50,000 per year (for simplicity, treat any lost earnings as part of the upfront cost). On average, a person with an MBA degree earns an extra $21,000 per year over a business career of 36 years. Jenny believes that her opportunity cost of capital is 5.9%. Given her estimates, find the net present value (NPV) of entering this MBA program. Are the benefits of further education worth the associated costs? The following time line depicts the cash flows associated with this problem: 2 36 Tuition (CF) - $102,000 Extra earnings $21,000 $21,000 $21,000 The net present value (NPV) of entering this MBA program is $. (Round to the nearest dollar.) Are the benefits of further education worth the associated costs? (Select the best answer below.) O Yes, the benefits of further education are worth the associated costs. Since the net present value (NPV) of entering this MBA program is greater than $0, Jenny will earn a return greater than her opportunity cost of capital. This decision will increase Jenny's wealth by an amount equal to the NPV. O No, the benefits of further education are not worth the associated costs. The net present value (NPV) of entering this MBA program is less than $0, this means Jenny will earn a return lower than her opportunity cost of capital. This decision will decrease Jenny's wealth by an amount equal to the NPV.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Long-term investment decision, NPV method Jenny Jenks has researched the financial pros and cons of entering into a 1-year MBA program at her state university. The tuition and
needed books for a master's program will have an upfront cost of $52,000. If she enrolls in an MBA program, Jenny will quit her current job, which pays $50,000 per year (for simplicity,
treat any lost earnings as part of the upfront cost). On average, a person with an MBA degree earns an extra $21,000 per year over a business career of 36 years. Jenny believes that her
opportunity cost of capital is 5.9%. Given her estimates, find the net present value (NPV) of entering this MBA program. Are the benefits of further education worth the associated costs?
The following time line depicts the cash flows associated with this problem:
36
Tuition (CFo)
- $102,000
Extra earnings
$21,000 $21,000
$21,000
The net present value (NPV) of entering this MBA program is $
(Round to the nearest dollar.)
Are the benefits of further education worth the associated costs? (Select the best answer below.)
Yes, the benefits of further education are worth the associated costs. Since the net present value (NPV) of entering this MBA program is greater than $0, Jenny will earn a return
greater than her opportunity cost of capital. This decision will increase Jenny's wealth by an amount equal to the NPV.
O No, the benefits of further education are not worth the associated costs. The net present value (NPV) of entering this MBA program is less than $0, this means Jenny will earn a
return lower than her opportunity cost of capital. This decision will decrease Jenny's wealth by an amount equal to the NPV.
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