Question
Walter White graduated from the Maylo Basketball Clinic six years ago, honing his skills as a point forward. Although he is satisfied with his current
Walter White graduated from the Maylo Basketball Clinic six years ago, honing his skills as a point forward. Although he is satisfied with his current skills, his goal is to become an NBA superstar. He feels that enrolling in a more advanced basketball clinic would allow him to achieve this goal. After examining various clinics, he has narrowed his choice to either Ovaltiny Basketball Clinic (OBC) or Anchor Basketball Clinic (ABC). Although internships (working for the clinics while training) are encouraged by both clinics, to get class credit for the clinic, no salary can be paid. Other than internships, neither clinics will allow its students to work on other companies while enrolled in its basketball clinic program. Walter currently plays second-stringer forward for Boston Seelteecs. His annual salary at for the team is 410,000 per year (gross), and his salary is expected to increase at 4.25 percent per year until retirement. He is currently 28 years old and expects to play for 40 more years (Walter applies the same training regimen as Lebron James to keep his body in tip-top shape). His current compensation package at the Seelteecs includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Walter has a savings account with enough money to cover the entire cost of his advanced basketball clinic program. Ovaltiny Basketball Clinic is one of the best advanced clinics that specializes in point forwards. Superstars like Jesse Pinkman and Saul Goodman are alumni of the clinic. The advanced training program requires two years of full-time enrollment at the clinic. The annual tuition is 195,000, payable at the beginning of each school year. Shoes, training equipment, and other necessary items are estimated to cost 19,000 per year. Both costs are not taxable. Walter expects that after graduation from Ovaltiny, he will receive a basketball contract offer for about 560,000 per year, with a 120,000-signing bonus. The salary at this new position will increase at 3.25 percent per year. Because of the higher salary, his average income tax rate will increase to 31 percent. Anchor Basketball Clinic started about 10 years ago and is less known compared to Ovaltiny. Anchor offers an accelerated, one-year program, with a tuition cost of 505,000 to be paid upon matriculation. Shoes, training equipment, and other necessary items for the program are expected to cost 25,500. Both costs are not taxable. Walter thinks that he will receive an offer of 590,000 per year upon graduation, with an 140,000-signing bonus. The salary at this position will increase at 3.5 percent per year. His average tax rate at this level of income will be 30 percent. Both clinics offer a health insurance plan that will cost 30,000 per year, payable at the beginning of the year. Walter also estimates that room and board expenses will cost 80,000 more per year at both clinics than his current expenses, payable at the beginning of each year. Both costs are not taxable. The appropriate discount rate is 6.5 percent
What initial salary would Ben need to receive to make him indifferent between attending Mount Perry Basketball Clinic and staying in his current position
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