Calculating The Cost of an MBA Degree
We will compute the net present value of pursuing the cost to determine whether an MBA is worth the financial investment.
The relevant cash flow is the incremental salary that will be earned over 21 years.
The incremental salary is 10%*95000=9,500.
The lifespan is 21 years.
Let us assume that the cost of capital is 7%.
| Year | Cash flow | Discounting factor formula | Discounting factor | Present value of cash flows |
| A | B | A*B | ||
| 1 | 9,500 | 1/(1+7%)^1 | 0.934579439 | 8,878.50 |
| 2 | 9,500 | 1/(1+7%)^2 | 0.873438728 | 8,297.67 |
| 3 | 9,500 | 1/(1+7%)^3 | 0.816297877 | 7,754.83 |
| 4 | 9,500 | 1/(1+7%)^4 | 0.762895212 | 7,247.50 |
| 5 | 9,500 | 1/(1+7%)^5 | 0.712986179 | 6,773.37 |
| 6 | 9,500 | 1/(1+7%)^6 | 0.666342224 | 6,330.25 |
| 7 | 9,500 | 1/(1+7%)^7 | 0.622749742 | 5,916.12 |
| 8 | 9,500 | 1/(1+7%)^8 | 0.582009105 | 5,529.09 |
| 9 | 9,500 | 1/(1+7%)^9 | 0.543933743 | 5,167.37 |
| 10 | 9,500 | 1/(1+7%)^10 | 0.508349292 | 4,829.32 |
| 11 | 9,500 | 1/(1+7%)^11 | 0.475092796 | 4,513.38 |
| 12 | 9,500 | 1/(1+7%)^12 | 0.444011959 | 4,218.11 |
| 13 | 9,500 | 1/(1+7%)^13 | 0.414964448 | 3,942.16 |
| 14 | 9,500 | 1/(1+7%)^14 | 0.387817241 | 3,684.26 |
| 15 | 9,500 | 1/(1+7%)^15 | 0.36244602 | 3,443.24 |
| 16 | 9,500 | 1/(1+7%)^16 | 0.338734598 | 3,217.98 |
| 17 | 9,500 | 1/(1+7%)^17 | 0.31657439 | 3,007.46 |
| 18 | 9,500 | 1/(1+7%)^18 | 0.295863916 | 2,810.71 |
| 19 | 9,500 | 1/(1+7%)^19 | 0.276508333 | 2,626.83 |
| 20 | 9,500 | 1/(1+7%)^20 | 0.258419003 | 2,454.98 |
| 21 | 9,500 | 1/(1+7%)^21 | 0.241513087 | 2,294.37 |
| Total | 102,937.51 |
The total present value of the future cash flows is $102,937.51. To compute the net present value, we deduct the initial investment of the MBA.
NPV=Total present value of the future cash flows-Initial Investment
NPV=102,937.51-30,485
NPV=72,452.51.
Pursuing an MBA is worth the financial investment because the investment’s net present value is positive.
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Question 
Before beginning work on this discussion forum, read Chapter 9: The Time Value of Money in the Foundations of Financial Management textbook.
Calculating The Cost of an MBA Degree
In this discussion forum, you will determine the rate of return of your MBA degree.
Initial Response:
For this discussion forum,
- The first step is to calculate the cost of your MBA. If your employer sponsors your education’s cost, you can use what you would have paid or use opportunity costs as a basis.
- After you determine your initial investment, determine the net present value (NPV) of that investment. For example, let us say “Joe” will be changing jobs when he achieves his MBA and will make 10% more annually. Joe plans to work for 20 more years. His MBA cost was $50,000. Do you forecast that pursuing an MBA is worth the financial investment? Be sure to show all your calculations.
Your initial response should be a minimum of 200 words. Graduate school students need to learn how to assess the perspectives of several scholars. Support your response with at least one scholarly and/or credible resource besides the text.