Week 3 Discussion Responses 4/3/2023 #1

Mycole’s Post

Hi Class,

The cost of the MBA is $43,355, with a total of 13 courses. We will start by calculating the NPV of the MBA investment using a starting salary of $350,000. To do this, we need to estimate the future cash flows, discount them to their present value, and subtract the initial cost of the MBA. Here are the steps: Calculate the NPV of the MBA investment using a starting salary of $350,000

• Future cash flows: 20 more work years and making 10% more annually due to the MBA. With a starting salary of $350,000, the wage after the MBA would be $385,000 per year. Assume the salary will increase by 3% per year due to merit. Using a formula to calculate the annual cash flows:

• o Year 1 cash flow = $385,000 o Year 2 cash flow = $396,550 ($385,000 * 1.03) o Year 3 cash flow = $408,646 ($396,550 * 1.03) ... Year 20 cash flow

= $739,297 ($714,695 * 1.03)

• Discount the cash flows to their present value: Let's a discount rate of 7% to account for inflation.

• o Year 1 present value = $385,000 / (1 + 7%)^1 = $359,813 o Year 2 present value = $396,550 / (1 + 7%)^2 = $347,573 o Year 3 present value = $408,646 / (1 + 7%)^3 = $337,259 ... Year

20 present value = $739,297 / (1 + 7%)^20 = $286,839

• Calculate the NPV: • o NPV = ($359,813 + $347,573 + $337,259 + ... + $286,839) -

$43,355 NPV = $6,888,481 - $43,355 (MBA cost) NPV = $6,845,126

Based on these calculations, the MBA investment has a positive NPV of $6,845,126. Therefore, pursuing an MBA is worth the financial investment.

Thank you for reading.

Cole

Arriol’s Post

The company that I work for is paying for my enrollment in this MBA program. I have not had

to personally pay for classes or books. So far I have taken 8 classes, now I only have 4 more

classes to complete. I have to provide the registrar a letter of credit for $2,220 every time I sign

up for a 6 week course. I will make a bit of room in my estimate and say grad school has cost

$32,000 since I do not know what the future textbooks and other materials will cost. Since this

was a free program for me, it was definitely a project worth undertaking. This is a real degree I

can use for future opportunities – whether those will be with my current employer or with a

future employer. According to the average salary survey website, the current typical pay for an

MBA graduate in the state of Arizona is around $95,000 (MBA | Arizona | Average Salary

Survey 2023, n.d.). Even though I may not stay in Arizona for very long after I graduate, I will

use this number for my calculation. That salary is around 50% more than I currently make. I will

use the current average raise rate for Arizona as 2% per year. I still work the maximum amount

of hours available, so there is not any other revenue generating activity I could think of that I

would be doing with my time if I were not taking classes. For this scenario, I will pretend that I

was given the option to allocate the cost of tuition towards my company 401k instead. I will use

6% as the discount rate for the investment. After calculating 5 years of salary and raises with a

degree against 5 years of investing the tuition and keeping my same salary instead, the NPV of

attending grad school is positive over $220,000.

MBA | Arizona | Average Salary Survey 2023.

(n.d.). https://www.averagesalarysurvey.com/mba/arizona