Person B has completed his undergraduate degree in finance before six years. His aim is to become an investment banker, though he is satisfied with the present job. Person B was searching for the best college to do MBA program, which he thinks that would assist in achieving his aim. He was looking for University W and College M. The details of Person B's current job and his course details are provided. Characters in the case: Person B University W College M Company DL College R College M School B Adequate information: Person B is not allowed to work anywhere until the completion of MBA program. The salaries are not paid for the internship course. Given situation: Instead of paying cash for the MBA program, Person B have to borrow the money. The present borrowing rate is 5.4%. To find: How the given situation affects the decision of Person B.

Question

(Comprehensive Problem) Suppose that you are in the fall of your senior year and are faced with the choice of either getting a job when you graduate or going to law school. Of course, your choice is not purely financial. However, to make an informed decision you would like to know the financial implications of the two alternatives. Let's assume that your alternatives are as follows: If you take the "get a job" route you expect to start off with a salary of $45,000 per year. There is no way to predict what will happen in the future, your best guess is that your salary will grow at 5 percent per year until you retire in 41 years. As a law student, you will be paying $25,000 per year tuition for each of the 3 years you are in graduate school. However, you can then expect a job with a starting salary of $70,000 per year. Moreover, you expect your salary to grow by 9 percent per year until you retire 36 years later. Clearly, your total expected lifetime salary will be higher if you become a…

Answer 1

Question

Chapter 4, Problem 6MC

Summary Introduction

Case summary:

Person B has completed his undergraduate degree in finance before six years. His aim is to become an investment banker, though he is satisfied with the present job. Person B was searching for the best college to do MBA program, which he thinks that would assist in achieving his aim. He was looking for University W and College M. The details of Person B's current job and his course details are provided.

Characters in the case:

Person B

University W

College M

Company DL

College R

College M

School B

Adequate information:

Person B is not allowed to work anywhere until the completion of MBA program.

The salaries are not paid for the internship course.

Given situation:

Instead of paying cash for the MBA program, Person B have to borrow the money. The present borrowing rate is 5.4%.

To find: How the given situation affects the decision of Person B.

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(Comprehensive Problem) Suppose that you are in the fall of your senior year and are faced with the choice of either getting a job when you graduate or going to law school. Of course, your choice is not purely financial. However, to make an informed decision you would like to know the financial implications of the two alternatives. Let's assume that your alternatives are as follows: If you take the "get a job" route you expect to start off with a salary of $45,000 per year. There is no way to predict what will happen in the future, your best guess is that your salary will grow at 5 percent per year until you retire in 41 years. As a law student, you will be paying $25,000 per year tuition for each of the 3 years you are in graduate school. However, you can then expect a job with a starting salary of $70,000 per year. Moreover, you expect your salary to grow by 9 percent per year until you retire 36 years later. Clearly, your total expected lifetime salary will be higher if you become a…

4

Victor hernandez Considers a Career Change Victor is somewhat satisfied with his sales career and has always wondered about a career as a teacher in a public school. He would have to take a year off work to go back to college to obtain his teaching certificate, and that would mean giving up his $53,000 salary for a year. Victor expects that he could earn about the same income as a teacher. (a) What would his annual income be after 10 years as a teacher if he received an average 3 percent raise every year? (Hint: Use Appendix A.1.) (b) Victor also could earn $4,000 each year teaching during the summers. What is the accumulated fu- ture value of earning those annual amounts over 10 years assuming a 5 percent raise every year? (Hint: Use Appendix A.3.)