Suppose you plan to retire in eight years, but your boss would like you to earn an online MBA in order to take on a new managerial position. The firm will continue to pay your salary while you are working through the online courses, and the new position pays an additional $15,000 per year. The online MBA tuition is $35,000 per year, and your discount rate is 5%. Should you complete the degree?

Question

Quizplus · Accepted Answer

We need to calculate the Net Present Value (NPV) of completing the online MBA in order to decide whether to pursue it or not.

First, let's calculate the additional earnings from the new managerial position over the remaining 8 years of the employee's career:

Additional earnings per year = $15,000
Number of years until retirement = 8
Total additional earnings = $15,000 x 8 = $120,000

Now, let's calculate the total cost of the degree program:

Annual tuition = $35,000
Number of years to complete = 2 (assuming a typical MBA program length)
Total tuition cost = $35,000 x 2 = $70,000

Using a discount rate of 5%, we can calculate the NPV of the additional earnings and the tuition cost:

NPV of additional earnings = $120,000 / (1+0.05)^8 = $81,483.52
NPV of tuition cost = -$70,000

NPV of completing the degree = NPV of additional earnings - NPV of tuition cost
= $81,483.52 - $70,000
= $11,483.52

Since the NPV is positive, the employee should pursue the degree as it would result in a positive benefit overall.

Suppose You Plan to Retire in Eight Years, but Your