Una works at the Sheraton Denarau but is considering quitting work for two years

Question

Una works at the Sheraton Denarau but is considering quitting work for two years to earn a Masters of Commerce Degree in Sales and Marketting (MCom). Her current job pays $40000 per year (after taxes), but she could earn $55000 per year (after taxes) is she had a MCom in Sales and Marketing. Tuition is $10000 per year, and the cost of an apartment near campus is equal to the $10000 per year she is currently paying. Una’s discount rate is 6 percent per year. She just turned 48nand plans to retire when she turns 60, whether or not she gets her MCom.

Using the above information in a three step process carefully explain whether Una should go to University to get her MCom or no.

Explanation / Answer

Solution The Period of service left upto retirement (60 - 48) = 12years In case Una is not doing Mcom The Value of its earnings = Salary * PVAF(6% , 12) 40000*8.383844 335353.76 The present value of earnings of future with out Mcom is 335353.76 In case Una is doing Mcom Year Cash flows PVF@6% PV of Cashflows 1 -20000 0.943396226 -18867.925 2 -20000 0.88999644 -17799.929 3 55000 0.839619283 46179.061 4 55000 0.792093663 43565.151 5 55000 0.747258173 41099.200 6 55000 0.70496054 38772.830 7 55000 0.665057114 36578.141 8 55000 0.627412371 34507.680 9 55000 0.591898464 32554.415 10 55000 0.558394777 30711.713 11 55000 0.526787525 28973.314 12 55000 0.496969364 27333.315 Net PV of total inflow with Mcom 323606.967 Here the 20000 includes 10000 of tution and 10000 of Campus fees And 55000 Is new salary after Mcom Now here we see the Present value of earning without Mcom is high So Una not need to get her Mcom Degree

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