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Education Investment Analysis

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A Masters of Accountancy degree at CU cost $10,000 for an additional fifth year of education beyond the bachelors degree. Assume that all tuition is paid at the beginning of the year. A student considering this investment must evaluate the present value of cash flows from possessing a graduate degree versus holding only the undergraduate degree. Assume that the average student with an undergraduate degree is expected to earn an annual salary of $48,000 per year (assumed to be paid at the end of the year) for 10 years. Assume that the average student with a graduate Masters of Accountancy degree is expected to earn an annual salary of $63,000 per year(assumed to be paid at the end of the year) for 9 years after graduation. Assume a minimum rate of return of 10%.

1. Determine the net present value of cash flows from an undergraduate degree. (using EX2)
2. Determine the net present value of cash flows from a Masters degree, assuming no salary is earned during the graduate year of schooling.
3. What is the net advantage or disadvantage of pursuing a graduate degree under these assumptions?

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Education investment analysis are examined. The net present value of cash flows from an undergraduate degrees.

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Hi,

Answer: Given that,
Cost of masters of Accountancy degree $10,000
Expected annual salary with an undergraduate degree per year $48,000
Years of earning with an undergraduate 10 years
Expected annual salary ...

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Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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