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A Masters of Accountancy degree at Central University costs $12,000 for an additional fifth year of education beyond the bachelor’s degree. Assume that all tuition is paid at the beginning of the year. A student considering the 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 $50,000 per year (assumed to be paid at the end of the year) for 10 years. Assume, also, that the average student with a graduate Masters of Accountancy degree is expected to earn an annual salary of $66,000 per year for nine years after graduation. Use 10% as your rate of return.
1. Determine the net present value of cash flows from an undergraduate degree
2. Determine the net present value of cash flows from the Masters of Accountancy degree
3. What is the net advantage/disadvantage to pursuing a graduate degree?
Your discussion answers will be graded based on the rubric. See the syllabus if you need to refresh your memory on what is required.