Question

Mr. A is 30 years old at the beginning of the new millennium and is thinking about getting an MBA. He is currently making Rs. 400,000 per year and expects the same for the remainder of his working years (until age 65). If he goes to a business school, he gives up his income for two years and, in addition, pays Rs. 200,000 per year for tuition. In return, he expects an increase in his salary after his MBA is completed. Suppose that the post-graduation salary increases at a 5% per year and that the discount rate is 8%. What is minimum expected starting salary after graduation that makes going to a business school a positive-NPV investment for Mr A? For simplicity, assume that all cash flows occur at the end of each year.

          Mr. A is 30 years old at the beginning of the new millennium and is thinking about getting an MBA. He is currently making Rs. 400,000 per year and expects the same for the remainder of his working years (until age 65). If he goes to a business school, he gives up his income for two years and, in addition, pays Rs. 200,000 per year for tuition. In return, he expects an increase in his salary after his MBA is completed. Suppose that the post-graduation salary increases at a 5% per year and that the discount rate is 8%. What is minimum expected starting salary after graduation that makes going to a business school a positive-NPV investment for Mr A? For simplicity, assume that all cash flows occur at the end of each year.

Added by Siddhi D.

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