Question One : Long-term investment decision, NPV method Jenny Jenks has researched the financial pros and cons
Question:
Question One :
Long-term investment decision, NPV method
Jenny Jenks has researched the financial pros and cons of entering into a 1-year MBA program at her state university. The tuition and needed books for a master's program will have an upfront cost of
$52,000.
If she enrolls in an MBA program, Jenny will quit her current job, which pays
$50,000
per year after taxes (for simplicity, treat any lost earnings as part of the upfront cost). On average, a person with an MBA degree earns an extra
$20,000
per year (after taxes) over a business career of
36
years. Jenny believes that her opportunity cost of capital is
6.9%.
Given her estimates, find the net present value (NPV) of entering this MBA program. Are the benefits of further education worth the associated costs?
The following time line depicts the cash flows associated with this problem:
0
1
2
36
Tuition(CF0)
$102,000
Extraearnings
$20,000
$20,000
$20,000
Question content area bottom
Part 1
The net present value (NPV) of entering this MBA program is
$enter your response here.
Question Two :
NPV and IRR
Benson Designs has prepared the following estimates for a long-term project it is considering. The initial investment is
$18,250,
and the project is expected to yield after-tax cash inflows of
$4,000
per year for
7
years. The firm has a cost of capital of
10%.
a.Determine the net present value (NPV) for the project.
b.Determine the internal rate of return (IRR) for the project.
c.Would you recommend that the firm accept or reject the project?
Question content area bottom
Part 1
a.The NPV of the project is
$enter your response here.