Question by Beni: PLEASE HELP ME OUT WITH THIS FINANCE PROBLEM?
This is Summer 2011, and you want to work out whether going to graduate school for your MBA, an otherwise desirable proposition in every respect, is a financially sound decision. You have been offered a job that pays $ 126,000 per year starting September 1, 2011, and you plan to take it up if you do not go for an MBA. If you do go for an MBA, you will:
(a) have to pay $ 63,000 each on September 1, 2011, and September 1, 2012 toward the cost of education, and
(b):start earning only upon graduation, with your post-MBA job starting on September 1, 2013.
For computational simplicity, assume that you are paid your annual salary in a lump sum at the end of each working year. You plan to retire on August 31, 2043 whether or not you go for an MBA in 2011. For the purposes of this problem you find it reasonable to assume that the term structure is flat at 4.5%.
(i):Assuming that your income remains constant over time with or without an MBA, that your starting salary after MBA is $ 153,000, and that you save a constant 15% of your income over your working life, work out the amount you would have saved on retirement (a) if you go for an MBA, and (b) if you do not go for an MBA.
(ii):Answer (i) above assuming that your income grows at the rate of 4.5% per year without an MBA, and 6.75% a year with an MBA. Also work out how long your savings will last if you withdraw $ 1.08 million every year in retirement starting August 31, 2044 both with and without an MBA.
Best answer:
Answer by WHAT
Look, this extra information is fine and dandy. For us common folk, what the HELL is wrong with a mere $ 125,000 salary? Not a damned thing. I would take that in a heart beat, and learn to live with three times my wages now.
I assume this is homework, so get to it.
What do you think? Answer below!