Personal Investment Analysis (CP10-2)

A Masters of Accountancy degree at Central University costs $12,000 for an additional fifth year of education beyond the bachelor's degree. Assume that all tuition is paid at the beginning of the year. A student considering this investment must evaluate the present value of cash flows from possessing a graduate degree versus holding only the undergraduate degree. Assume that the average student with an undergraduate degree is expected to earn an annual salary of $50,000 per year (assumed to be paid at the end of the year) for 10 years. Assume that the average student with a graduate Masters of Accountancy degree is expected to earn an annual salary of $66,000 per year (assumed to be paid at the end of the year) for nine years after graduation. Assume a minimum rate of return of 10%.

Calculate the net present value of cash flows from an undergraduate degree. Use the present value table provided in this chapter in Exhibit 5 or look up Net Present Value tables on the internet

Determine the net present value of cash flows from a Masters of Accountancy degree, assuming no salary is earned during the graduate year of schooling.

What is the net advantage or disadvantage of pursuing a graduate degree under these assumptions?