!!!!!!Please Evalue the Present Value for Alternative 2 and 3 !!!!!
John Ross graduated from college 2 years ago with a finance undergraduate degree. Although he is satisfied with his current job, his dream is to become an investment banker. To become an investment banker, he would need to take an MBA degree or to find any internship or job opportunity that will somehow introduce him to the investment world. He is thus looking for different alternatives. I will describe below the four options that John Ross has. In evaluating all these possibilities, assume that each option is effective immediately ("effective immediately" means that if John Ross decides to stay at his current work, for instance, this decision will be taken today, at t=0). Alternative 1: Current Job at D&L He can keep his current job at the management firm D&L. His annual salary at the firm is $65,000 per year and is salary is expected to increase at 3% per year until retirement. He is currently 28 years old and he expects to work for 40 more years. His current job includes a full paid health insurance plan and is current average tax rate is 26%. John has a savings account with enough money to cover the entire cost of the MBA program. Alternative 2: MBA Program at Carlton College The Carlton College offers a one-year MBA program. The tuition cost is $85,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $4,500. The Carlton program is a full-time one that does not allow students to work in the meantime. John thinks that after the Carlton degree he will be able to receive an offer of $92,000 per year with a $18,000 signing bonus. The salary at this job will increase at 3.5% per year. His average tax rate at this level of income will be 29%. Alternative 3: MBA Program at Northeastern University Northeastern University offers a two-years MBA program. The annual tuition is $90.000. Northeastern allows students to work while enrolled in the MBA program. After some research, John has found out that he can potentially work for his marketing professor as research assistant. The annual stipend for this position at Northeastern University is $25,000 for the first year and $27,000 for the second year. Books and other supplies are estimated to cost $2,000 per year. John expects that after graduation from Northeastern University he will receive a job offer of $85,000 per year with a signing bonus of $10,000. The expected salary will increase at 2% per year for the first 10 years. The growth rate will be 4% thereafter. The average income tax rate is 30%. In addition to the information provided above, all schools Carlton, Northeastern, and Brandeis) offer a health insurance plan that will cost $3,000 per year. John also estimates that room and board expenses will cost $2,000 more per year at all schools than his current expenses. The appropriate discount rate is 6.3%. Assuming all salaries are paid at the end of the year, what is the best option for John from a strictly financial point of view? Evaluate the Present Value of the four alternatives. John Ross graduated from college 2 years ago with a finance undergraduate degree. Although he is satisfied with his current job, his dream is to become an investment banker. To become an investment banker, he would need to take an MBA degree or to find any internship or job opportunity that will somehow introduce him to the investment world. He is thus looking for different alternatives. I will describe below the four options that John Ross has. In evaluating all these possibilities, assume that each option is effective immediately ("effective immediately" means that if John Ross decides to stay at his current work, for instance, this decision will be taken today, at t=0). Alternative 1: Current Job at D&L He can keep his current job at the management firm D&L. His annual salary at the firm is $65,000 per year and is salary is expected to increase at 3% per year until retirement. He is currently 28 years old and he expects to work for 40 more years. His current job includes a full paid health insurance plan and is current average tax rate is 26%. John has a savings account with enough money to cover the entire cost of the MBA program. Alternative 2: MBA Program at Carlton College The Carlton College offers a one-year MBA program. The tuition cost is $85,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $4,500. The Carlton program is a full-time one that does not allow students to work in the meantime. John thinks that after the Carlton degree he will be able to receive an offer of $92,000 per year with a $18,000 signing bonus. The salary at this job will increase at 3.5% per year. His average tax rate at this level of income will be 29%. Alternative 3: MBA Program at Northeastern University Northeastern University offers a two-years MBA program. The annual tuition is $90.000. Northeastern allows students to work while enrolled in the MBA program. After some research, John has found out that he can potentially work for his marketing professor as research assistant. The annual stipend for this position at Northeastern University is $25,000 for the first year and $27,000 for the second year. Books and other supplies are estimated to cost $2,000 per year. John expects that after graduation from Northeastern University he will receive a job offer of $85,000 per year with a signing bonus of $10,000. The expected salary will increase at 2% per year for the first 10 years. The growth rate will be 4% thereafter. The average income tax rate is 30%. In addition to the information provided above, all schools Carlton, Northeastern, and Brandeis) offer a health insurance plan that will cost $3,000 per year. John also estimates that room and board expenses will cost $2,000 more per year at all schools than his current expenses. The appropriate discount rate is 6.3%. Assuming all salaries are paid at the end of the year, what is the best option for John from a strictly financial point of view? Evaluate the Present Value of the four alternatives
