You are thinking of attending a two-year MBA Program. The cost of the MBA program is $45,000 per year. Assume the first cash flows occurs at the end of year 0 and subsequent cash flows occur at the end of the year. (5 points) You expect the MBA program to increase your current salary by a certain amount for the five years after you graduate the MBA (i.e., your first cash inflow is at the end of year 2 and your last cash inflow occurs in year 6) and nothing after the first five years of working. Assume a discount rate of 7%. You believe that the annual salary increase has four possibilities that are equally likely:

1) a $15,000 increase in salary

2) a $20,000 increase in salary

3) a $30,000 increase in salary

4) a $35,000 increase in salary

a) What is the expected value and standard deviation of the salary increase?

b) Conduct a Monte Carlo simulation with 500 draws and report the average NPV and the standard deviation of the NPV. (hint: the draws come from the distribution of the salary increase for each of five years.)

c) Estimate the NPV at the 5th percentile? Is the investment still worthwhile if you end up experiencing this 5th percentile outcome? Why or why not ?

d) Plot the frequency distribution (with % of times as your Y-axis, and NPV as your X-axis).