Robert received an undergraduate degree in finance three years ago and has been employed all this time at a mid-size wealth management company. His initial salary was $65,000 per year and increased 5.0% every year. Robert decided that his three-year stint at this employer has prepared him well for an MBA degree. He applied to several schools and was accepted by one of the top- 10 programs in the county. Robert notified his manager about his decision yesterday, but today the manager made him the following offer: Robert will be assigned to lead a very important project with immediate salary increase of

15%. The manager assured him that for the following three years his annual raises will be at least 7.0%. Robert is planning to make his decision (quit and go to school or stay and lead the project) based on the present value of future earnings in the next 25 years (ignore taxes). He plans to stop working in exactly 25 years regardless of his decision and become a gentleman farmer.

1. Build a spreadsheet with Robert's cash flows for the next 25 years and calculate the present value of future earnings for two options: (1) stay and lead the project and (2) enroll into MBA program;

assume the following: Robert estimates that the two-year MBA program will cost $110,000 per year in tuition and other expenses (assume the payments are made at the end of the year); his starting salary after MBA is expected to be $125,000 and will grow 3.0% per year, the same growth rate that Robert expects his salary will grow at his current employer after the 7.0% raises are over. Robert thinks that the appropriate discount rate is equal to 10-yr Treasury rate on August 3, 2020 + 3.00% (from Section I). What option should Robert pick?

1. What should the immediate adjustment to his current salary be to make Robert indifferent between the two options? (Hint: use solver function in Excel)
2. Discuss your findings. What other considerations should Robert take into account in making his decision? Can they be incorporated into the PV (present value) framework? Enter your comments in a text box.