Suppose today is August 1, 2020. Natasha Kingery is 30 years old and has a Bachelor of Science degree in computer science. She is currently employed as a Tier 2 field service representative for a telephony corporation located in Seattle, Washington, and earns $38,000/year after taxes. On average, she expects her salary will grow at 3% per year. Natasha hopes to retire at age 65 and has just begun to think about the future.

Natasha has $75,000 she recently inherited from her aunt. She invested this money in 1-year US Treasury bonds. She is considering whether she should further her education and would use her inheritance to pay for it.

She has investigated a couple options and is asking for your help as a financial planning intern to determine the financial consequences associated with each option. Natasha has already been accepted to two programs and could start either one soon.

One alternative that Natasha is considering is attaining a certification in network design. This certification would automatically promote her to a Tier 3 field representative. The base salary for a Tier 3 representative is $10,000 more than her current salary and the differential is expected to grow at 3% per year for as long as she remains employed. The certification program requires the completion of 20 web based courses and a score of 80% or better on the final exam. She has learned the average amount of time necessary to finish the program is one year. The total cost of the program is $5000, due upon enrollment. Because she will do all the work for the certification on her own time, Natasha does not expect to lose any income during the certification process.

Another option is going back to school for an MBA degree. With an MBA degree Natasha expects to be promoted to a manager in her current firm. The management position pays $20,000/year more than her current position. She expects the salary differential will also grow at a rate of 3% per year for as long as she keeps working. The evening program, which will take three years to complete, costs $25,000/year, due at the beginning of each of her three years in school. Because she will attend classes in the evening, she does not expect to lose any income while she is earning her MBA if she chooses to undertake it.

1. Create a timeline in Excel for Natashas current situation, as well as the certification program and MBA degree options, using the following assumptions:
   1. Salaries for the year are paid only once, at the end of the year.
   2. The salary increase becomes effective immediately upon graduating or certification. That is, because the increases become effective immediately, but salaries at the end of the year, the first salary increase will be paid exactly one year after graduate or certification.
   3. Assume the bond is earning an interest rate of 1.5% compounded semi-annually. Use this rate for the discount rate for analysis.
2. Calculate the present value of the salary differential for the certification program.
3. Calculate the present value of the salary differential for the MBA degree.
4. Based on the calculations in parts 3 & 4, what advice would you give to Natasha?
5. What if Natasha has overestimated the growth rate of the salary differential and the salary differentials grow at 1% APR. How would your advice to Natasha change?