Suppose the time is five years after you graduate from Manhattan College and you are working at a money management company in New York. Your plan is to retire in 35 years. Your current salary is $60,000 and you expect it to increase at 3% per year. Although you are satisfied with your job, your goal is to become an investment bank and you feel that an MBA degree may be helpful to achieve that goal. The tuition of a top two-year, full time MBA program, is typically $50,000 a year, payable at the beginning of each school year. Books and supplies are estimated to cost $2,500 per year and you need to buy a health insurance plan that will cost $3,000 per year, all payable at the beginning of the year.You expect that after graduation, you will receive a job offer more than $100,000, with an immediate signing bonus of $15,000. The salary at that job will increase at 4% per year. Your decision whether pursuing a MBA partially depends on the net present value of the MBA degree. Below are what you need to figure out:

1. Your current average tax rate is 25%. If not taking the two years off to pursue the MBA, you will continue to work for 35 years and then retire. Make a year-by-year 35-year table of the before and after tax yearly income. Assume your salary is paid at the end of each year and use a discount rate of 6.5%. What is the present value of your expected after-tax life time income without the MBA degree? (25%)

2. Make another year-by-year 35-year table. Specify the related cash outflows for attending the MBA program, including yearly tuitions, books and supplies and health insurance and your lost salary as the opportunity cost, and then your expected signing bonus, the before and after-tax yearly income holding the MBA. Assuming you will still retire 35 years from today and your average tax rate will increase to 34% because of the higher salary. Assume your salary is paid at the end of each year and use a discount rate of 6.5%. What is the present value of the expected after-tax life-time income with the MBA degree? Compare with the answer (1), is it worth pursuing the MBA? (45%)

3. You find that the life-time income with an MBA largely depends on the starting salary. What initial salary offer after getting an MBA would make you indifferent between attending a two-year Top MBA program and staying on your current position? (30%) (Hint: You can use the solver function or trial and error until you get a closest answer)