Notes - initially, to learn we use the risk free rate and it's given to you; in the real world, the risk-free rate is taken from USG debt because it is as risk \"free\" as anything in the world, and because it is a massive, liquid market, thus ensuring efficient price discovery (i.e. we also know the rate) Rate = the return you can be getting on an alternative investment with similar risk Scenarios - A new graduate (Susan) has inherited $75,000 and is trying to decide which of 3 paths to take in terms of investing this money. She is asking for your help as a financial planning professional to determine the financial consequences associate with each of the 3 options. Her goal is to choose the path which maximizes NPV. Here are the options: Option 1 - No change to work situation + In this option, Susan continues at her current position, earning her base pay of $38,000 per year. This pay grows at 3.0% per year. Option 2 - Certification Program Susan is considering attaining a certification in network design. This certification would automatically promote her to a Tier 3 field service representative in her company. The base salary for a Tier 3 representative is $10,000 more per year than her current base pay. + The certification program requires one year to complete and costs $5,000, which is due when she begins the program. + Susan will do all the certification work on her own time so she will not loose any income during her work on the certification. Option 3 - get an MBA This option is to go back to school to get an MBA. Upon completion, Susan would be promoted to a manager which earns $20,000 more per year than her current base pay. The MBA program requires 3 years to complete. + The cost of the program is $25,000 per year, due at the beginning of each of the 3 years. + The MBA program is in the evening so she can continue to work and earn her base pay while she is completing the MBA Lab Steps + Create a timeline in Excel (or the software tool of your choice) for Susan's three options, using the assumptions shown at the bottom of this document Calculate the net present value of each of the 3 options Based on your answers, what advice will you give to Susan in terms of which path to take