Practicing Net Present Value

A Master’s 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 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 $50,000 per year (assumed to be paid at the end of the year) for 10 years after graduation. Assume that the average student with a graduate Master’s of Accountancy degree is expected to earn an annual salary of $66,00 per year (assumed paid at the end of the year) for nine (9) years after graduation. Assume a minimum required rate of return of 10%:

1. Determine the net present value of cash flows from an undergraduate degree.

2. Determine the net present value of cash flows from a Master’s of Accountancy degree, assuming no salary is to be earned during the graduate year of schooling.

3. What is the net advantage or disadvantage of pursuing a graduate degree under these circumstances?

The paper should meet the following requirements:

•Be 2-4 pages in length, not counting the required title and reference pages. The paper should include an introduction, a body with at least two fully developed paragraphs, and a conclusion.

•Support your interpretation with evidence from the textbook and at least two peer-reviewed journal articles.

•Citations should adhere to the APA requirements.

Textbook (Managerial Accounting 13 edition, Warren, Reeve, Duchac).

 
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