How did you get the 6.14 in your solution to this: A master 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 an undergraduate degree. Assume that the average student with an undergraduate degree is expected to earn a salary of $50,00 per year (assumed to be paid at the end of the year for 10 years. Assume that the average student with a master of accountancy degree is expected to earn a salary of $66,000 per year (assumed to be paid at the end of the year) for nine years after graduation. Assume a minimum rate of return of 10%. Round to the nearest dollar. Determine the net present value of cash flows from an undergraduate degree. Use the present value of an annuity table appearing in Exhibit 5 of this chapter. Determine the net present value of cash flows from a master of accountancy degree, assuming that no salary is earned during the graduate year of schooling. What is the net advantage or disadvantage of pursuing a graduate degree under these assumptions? check_circle Expert Answer thumb_up thumb_down Step 1 Answer 1 The net present value of cash flows from an undergraduate degree is computed as: Discounted cash outflows from an undergraduate degree Discounted cash inflows from an undergradu

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 4TIF

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How did you get the 6.14 in your solution to this:

A master 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 an undergraduate degree. Assume that the average student with an undergraduate degree is expected to earn a salary of $50,00 per year (assumed to be paid at the end of the year for 10 years. Assume that the average student with a master of accountancy degree is expected to earn a salary of $66,000 per year (assumed to be paid at the end of the year) for nine years after graduation. Assume a minimum rate of return of 10%. Round to the nearest dollar.

Determine the net present value of cash flows from an undergraduate degree. Use the present value of an annuity table appearing in Exhibit 5 of this chapter.
Determine the net present value of cash flows from a master of accountancy degree, assuming that no salary is earned during the graduate year of schooling.
What is the net advantage or disadvantage of pursuing a graduate degree under these assumptions?

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The net present value of cash flows from an undergraduate degree is computed as:

Discounted cash outflows from an undergraduate degree Discounted cash inflows from an undergraduate degree =====NilCash inflows ×Present value annuity factor for 10 years$50000×PVAF(10%,10)$50000 ×6.14$307000

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