Week 3 Discussion Responses 4/3/2023 #2

Victoria’s Post

Net present value (NPV) is often the preferred investment selection method as it allows the stakeholders to understand what kind of return is expected while accounting for the time value of money (Block et al., 2022). NPV is the sum of present values of all outflows and inflows related to a project. Inflows that arrive in later years must provide a return that at least equals the cost of the invest capital years prior (Fernando, 2022).

In this week’s scenario, we are looking at our investment of obtaining an MBA versus what we expected our payoff will be in future years. Although my employer sponsors my MBA, this program costs $740 per credit. With 39 credits in this program, the investment, or opportunity cost, is around $30,000.

If I don’t get the MBA, I will have saved $30k, but my salary will stay the same. This means I can only invest $20k a year. If I plan to keep working at the same job with the same income every year, then I can use equation 9-5 (below) for Future Value for annuities. With initial investment of $0, but able to invest $20k for 20 years with a 6% return, I would have $735,711.82.

If I get the MBA, I will have spent $30,000, but I anticipate I will move to a managerial role within 5 years with a higher salary that will allow me to invest $50k a year. Using equation 9-5, with number of periods as 15 years, 6% interest, a $50k recurring investment, and -$30,000 starting amount, I will have made $1,091,901.75. These calculations prove the MBA is a good investment, barring the assumptions made come true.

Block, S. B., Hirt, G. A., & Danielsen, B. R. (2022). Foundations of financial management (18th ed.). McGraw-Hill Higher Education.

Fernando, J. (2022, November 15). Net Present Value (NPV). Retrieved from https://www.investopedia.com/terms/n/npv.asp

Evie’s Post

Week 3 Discussion 1

Due to my years of honorable service to the Marine Corps, I was blessed to utilize my GI Bill to take MBA courses in a manner in which the expenses of attending this particular university are covered. Nevertheless, I will calculate the Present Net Value (NPV) as if I paid for it out of pocket. After calculating the cost of each course along with the technology fee and the average cost of books and materials, the entire cost of this program would be $30,390. Our textbook (Block et al., 2019) defines NPV as the most standard method employed to calculate the current value of money, which apprehends all of the outflows and inflows of money. For Base salary, I will use $90,000 and assume an average of a 9% pay increase per year after the fulfillment of this program. I also plan to remain working for roughly 35 more years to use this as the period. NPV is computed using the formula below and the numbers mentioned above.

● Net Present Value(NPV)= Cash flow / (1 + i) ^t – initial investment

After doing the calculation in excel, the NPV was calculated to be $56,407.43 after 35 years. Since NPV is utilized to examine funds one could accumulate from an investment, one can decide if it is worthwhile. (Wessel, M., & Gallo, A.,2017). Since the NPV value is more significant than zero, this MBA program would be a great return on my investment. The recently mentioned figures are not accounting for the funds I will obtain from my publishing company (EV Publishing LLC) or my lawn service (E&E Lawn Services), even though the fundamental principles of business operations were obtained throughout my MBA studies. The main reason for the recently mentioned statement is that I have numerous business opportunities in the making, and actual life circumstances have to be accounted for, which could impact revenue and expenses in the future.

References: Wessel, M., & Gallo, A. (2017, December 6). A refresher on Net present value. Harvard Business Review. Retrieved from https://hbr.org/2014/11/a-refresher-onnet-present- value