Question
You are considering enrolling in a 2-year long on-line MBA program. You will continue your current employment. If you do, you must pay two payments
You are considering enrolling in a 2-year long on-line MBA program. You will continue your current employment. If you do, you must pay two payments of $30,000; the first happens today, at the beginning of the program, and the second is due 1 year from today, at the beginning of the second year. These payments are tax deductible since the program qualifies as education necessary for your job. Because of this advanced degree, you expect your annual earnings stream will increase; this increase will occur after you complete the 2-year program. You plan on working for 20 years after you graduate. Remember that in capital budgeting, we assume that cash flows from the operations/activity happen at the end of the year. To finance this program, you will withdraw money from your investment portfolio, which is currently earning an average of 6%. Thus, you have decided that any use of these funds should earn at least 6%. What is the annual, before-tax increase in earnings necessary to make this investment worthwhile? Your personal tax rate is 25%.
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