Mr, Corporate Finance


A friend of yours, employed as a Tier 2 field service representative for a telephony corporation, wants your help as a financial specialist to determine the financial consequences associated with investing in education. One alternative is to enroll in an MBA-program and the other alternative is to attain a certification in network design. Your friend has provided you the following information:
• The current salary of $40 000 is paid once at the end of each year.
• The salary is expected to grow at a rate of 3% per year and your friend is expected to work for another 35 years (until retirement)
• Your friend’s income tax level is expected to be 25% forever
• Your friend’s current discount rate is 10% and is expected to stay at this level forever unless no further education investment is made.
• Today is the 1st of January 2013
The network design certification education
• The education starts immediately and ends 31st of December 2013
• The course fee is $5 000, to be paid today.
• The certificate implies a promotion and a salary increase of $10 000. The new salary will be paid starting December 31st 2014 and onwards.
• Due to that the education runs on evenings no salary loss is expected during the education
• Upon completion of the education your friend’s new discount rate will become 11%
The mba-program education
• The education starts immediately and ends the 31st of December 2013
• If enrolling your friend will earn no salary during 2013
• The tuition fee is $20 000, to be paid today
• An MBA degree implies a managerial position in the company and a salary increase of $20 000 . The new salary will be paid starting December 31st 2014 and onwards.
• Upon completion of the MBA-program your friend’s new discount rate will be 13% (following higher risk of income decrease)

Your task
Your task is to create a spreadsheet model (using Microsoft Excel) showing your friend which alternative is to prefer from a financial point of view. In particular your friend wants you to show her the following in the spreadsheet model:
a) Show by calculation the net present value for the three alternatives (no education, network design certification, mba). Also, according to NPV suggest which alternative you advise your friend to choose
b) Show by calculation (creating a formula) the discount rate (by replacing the 13% given above) at which your friend ought to be indifferent between not investing in education and investing in the MBA education (assuming she will complete it successfully).
c) Your friend is a bit uncertain about what her discount rate will be if completing an MBA. Therefore she wants you to show in a graph the NPV (with and without income tax) for different discount rates. Use the interval 0% to 100% with 5% subintervals. Set the y-axis as NPV and use the x-axis for the discount rates.
Finally, since your friend wants to be able to use this spreadsheet in the future as well you need to use cell references in the formulas (for tasks a, b and c above).
Posted Date: 12/29/2012 2:43:12 PM | Location : Sweden

Related Discussions:- Mr, Assignment Help, Ask Question on Mr, Get Answer, Expert's Help, Mr Discussions

Write discussion on Mr
Your posts are moderated
Related Questions
Part II The cost of equity (discount rate) can also be determined by using the Capital Asset Pricing Model (CAPM). Calculating the cost of equity using the CAPM model is often mor

how to calculate duration of a portfolio by using the average maturity, average coupon rate and average yield of maturity?

I have been given 3 different types of projects. They state the IRR and how much the project will add. The question goes on to give a WACC with break points. The question wants

What effects have mergers had on fees assessed for retail bank services? A: The impact is not clear. Market conditions and the level of competition often determine the cost for

Prepare a portfolio of analytical reference materials including the financial reports for at least five years. This is your analytical permanent file for the chosen company. (ii) M

Question: (a) The Mauritius Automated Clearing and Settlement System (MACSS) is the Mauritian Real-time Gross Settlement (RTGS) system. (i) Define the term gross settlement

X has 10 shareholders, each of whom owns 100 of its 1,000 outstanding shares of common stock (worth $100 per share).  No other stock is outstanding.  Determine whether the securiti

5. Produce a cash budget and determine the statement of external financing required for NSP Inc. for the months of December and January using the following information: • NSP Inc.

Question: (a) Discuss the concept of financial gearing and its implications for share price maximisation. (b) A firm has both, a current and a target debt-equity ratio of 0.

i need a assignment on uk company to be submitted in my college how can u help