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
Review of Revenue This activity will require you to access at least a portion of the federal budget as well as a state, local and an agency budget. This can be done online. Howeve

Problem : (a) Define corporate governance. (b) Discuss about the Advantages of Corporate Governance. (c) Anlayse the influence relationships among business, government

Here is the pro-forma income statement for Semen Indonesia, an overseas venture that Cemex is planning to invest in.  In this exercise, you will need to evaluate the inve

Assignment Part 1   Shareholder Value Provide (a) one page write-up of the company; (b) Present its significant performance indicators such as P/BV; an

A leveraged recap, in which Midco would issue debt and use the proceeds to repurchase shares. A Midco industry has 20 million shares outstanding with market price of $15 per share

how would the concept of economic value added reduce the problem of agency conflict

Question: (a) Describe briefly how electronic money works. (b) Give two benefits of e-money to each of the following: (i) consumers, and (ii) business. (c) Outline

Many ERP vendors have developed strategies to make their software available to small to medium enterprises (SME's). These strategies have focused around pre-configured solutions, i

It is a dividend on a share of cumulative preferred stock that has not still being paid to the shareholder. Accumulated dividends are the product of dividends that are carried forw

Please explain and help me with a homework question about percent of sales method