In this assignment you will perform a Net Present Value Analysis for a project.
1. Assume a student is planning to pursue a two-year master’s degree. There are two
educational options the student is considering, with investment and cash flows as follows.
Option A: Full-Time Education
Example cash investment: $100,000. Currently the student is earning $30,000. The
student will quit his/her current job to study a Master’s degree in computer science.
Upon graduation the student hopes to earn $60,000 per year in new job.
Option B: Part-Time Education
Example cash investment: $100,000. Currently the student is earning $30,000. The
student can work part-time for three years at a salary of $20,000 while studying towards
the master’s degree in project management. Upon graduation the student anticipates a
possible increase in salary by $10,000 (total $40,000) in the same company.
The requirements for the assignment are:
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Answer the following questions based on the unit readings:
1. Briefly describe what net present value is, how it is calculated, and what it is
used for.
2. Calculate the NPV for each educational option. The discount rate is 8%.
3. Which option should the student choose? Explain your decision including
any necessary assumptions made.