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    Chap 04 and 05 (Mini Case)

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    ricky setiawan
    Ben is considering whether to get an MBA now or stay in his current position. There are three options to consider: 1) staying in his current job for 40 years, 2) getting an MBA from Wilton University, or 3) getting an MBA from Mount Perry College. To analyze each option, Ben calculates the present value of the future cash flows from salaries over 38-40 years, taking into account salary growth rates and tax rates. Based on the present value analysis, getting an MBA from Wilton University has the highest net present value, suggesting it is the best financial option for Ben.

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    Chap 04 and 05 (Mini Case)

    Uploaded by

    ricky setiawan
    121 views18 pages
    Ben is considering whether to get an MBA now or stay in his current position. There are three options to consider: 1) staying in his current job for 40 years, 2) getting an MBA from Wilton University, or 3) getting an MBA from Mount Perry College. To analyze each option, Ben calculates the present value of the future cash flows from salaries over 38-40 years, taking into account salary growth rates and tax rates. Based on the present value analysis, getting an MBA from Wilton University has the highest net present value, suggesting it is the best financial option for Ben.

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    Ben is considering whether to get an MBA now or stay in his current position. There are three options to consider: 1) staying in his current job for 40 years, 2) getting an MBA from Wilton University, or 3) getting an MBA from Mount Perry College. To analyze each option, Ben calculates the present value of the future cash flows from salaries over 38-40 years, taking into account salary growth rates and tax rates. Based on the present value analysis, getting an MBA from Wilton University has the highest net present value, suggesting it is the best financial option for Ben.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    121 views18 pages

    Chap 04 and 05 (Mini Case)

    Uploaded by

    ricky setiawan
    Ben is considering whether to get an MBA now or stay in his current position. There are three options to consider: 1) staying in his current job for 40 years, 2) getting an MBA from Wilton University, or 3) getting an MBA from Mount Perry College. To analyze each option, Ben calculates the present value of the future cash flows from salaries over 38-40 years, taking into account salary growth rates and tax rates. Based on the present value analysis, getting an MBA from Wilton University has the highest net present value, suggesting it is the best financial option for Ben.

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    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 18

    Chapter 4 and 5

    TOPIC ::
    Discounted Cash Flow Valuation ( Time Value Of Money)

    Net Present Value and Other Investment Criteria

    Adrian Radityatama (041914353016)


    Ricki Setiawan Sulistyo (041914353031)
    Chapter 4
    Discounted Cash Flow Valuation ( Time Value Of Money)

    THE MBA DECISION


    Mini Case
    1.How does Ben’s age affect his decision to get an MBA? Ben Age is
    important since he could only work for 40 more years mean the
    period of him recieve salary will limited and not last forever.
    2.What other, perhaps nonquantifiable, factors affect Ben’s decision to get
    an MBA? Non quantifiable factor in my opinion was the risk of
    industries where he work and could he maintain his performance at
    work while he was studying and finish a lot of homework. He could
    be fired from his job if he can’t keep focus.
    3.Assuming all salaries are paid at the end of each year, what is the best
    option for Ben—from a strictly financial standpoint?
    4.Ben believes that the appropriate analysis is to calculate the future value
    of each option. How would you evaluate this statement?
    5.What initial salary would Ben need to receive to make him indifferent
    between attending Wilton University and staying in his current position?
    6.Suppose, instead of being able to pay cash for his MBA, Ben must
    borrow the money. The current borrowing rate is 4.3 percent. How would
    this affect his decision?a
    4-3
    Mini Case
    There are three options have to be calculated:
    1. Keeping his current work for 40 years
    Salary = $60,000, tax rate = 26%, because of tax rate, c = $44,400
    R (discount rate) = 6.5%
    G (growth rate) = 3%
    T (the number of period working) = 40
    So the PV is = $ 937,474.28
    2. Getting the MBA at Wilton University
    The factors to consider are: He will receive a job offer for about $110,000 per year, with a
    $20,000 signing bonus. The salary at this job will increase at 4 % per year. Because of the
    higher salary, his average income tax rate will increase to 31 %.
    Salary = $110,000, tax rate = 31%, so, C = $75,900
    R (discount rate) = 6, 5%
    G (growth rate) = 4%
    T (the number of period working) = 38 (40 years – 2 years)
    So the PV is = $ 1,806,116.4
    3. Getting the MBA at Mount Perry College
    The factors to consider are: he will receive an offer of $92,000 per year upon the graduation,.
    The salary at this job will increase at 3.5 % per year. His average tax rate at this level of
    income will be 29 %.
    Salary = $ 92,000, tax rate = 29%, so, C = $ 65,320
    R (discount rate) = 6, 5%
    G (growth rate) = 3, 5%
    T (the number of period working) = 39
    So the PV is = $1,463,821.2
    4-4
    Mini Case
    1. Keeping his current work for 40 years
    There are several factors to be considered to calculate the future values (FV) of the first
    options are: His annual salary at the firm is $60,000 per year, and his salary expected
    to increase at 3 % per year until retirement, his current average tax rate is 26 %.
    In this case, to get the present value (PV), we can use the formula of growing annuity.
    Salary = $60,000, tax rate = 26%, because of tax rate, c = $44,400
    G (growth rate) = 3%
    T (the number of period working) = 40
    So the FV is = $11,639,750.53
    2. Getting the MBA at Wilton UniversityThe factors to consider are: He will receive
    a job offer for about $110,000 per year, with a $20,000 signing bonus. The salary at
    this job will increase at 4 % per year. Because of the higher salary, his average income
    tax rate will increase to 31 %.
    Salary = $110,000, tax rate = 31%, so, C = $75,900
    G (growth rate) = 4%
    T (the number of period working) = 38
    So the FV is = $19,771,099.95
    3. Getting the MBA at Mount Perry College
    The factors to consider are: he will receive an offer of $92,000 per year upon the
    graduation,. The salary at this job will increase at 3.5 % per year. His average tax rate
    at this level of income will be 29 %.
    Salary = $ 92,000, tax rate = 29%, so, C = $ 65,320
    G (growth rate) = 3, 5%
    R = 6.5%
    T (the number of period working) = 39
    So the FV is = $17,065,646.13
    4-5
    Chapter 5

    Net Present Value and Other Investment Criteria

    BULLOCK GOLD MINING


    CASE OVERVIEW ..

    Alma Garrett
    (CFO)
    9-7
    ALMA’S CASH FLOW ESTIMATION ..

    9-8
    QUESTIONS OF THE CASE

    • Payback Period

    • IRR & MIRR

    • NPV (Net Present Value)

    • Profitability Index

    • Financial Decision
    PAYBACK PERIOD (SPREADSHEET)

    Formula Payback Period In D13 = - D4/(C5) + 4


    Formula Disc Payback Period in F13 = - F8/(E9) + 5
    DISCOUNTED PAYBACK PERIOD

    Year Initial Investment Discounted Cashflow


    0 $950,000,000
    1 $190,000,000/(1.12)1 = $169,642,857.1
    2 $215,000,000/(1.12)2 = $171,396,683.7
    3 $225,000,000/(1.12)3 = $160,150,555.8
    4 $285,000,000/(1.12)4 = $181,122,652.3
    5 $275,000,000/(1.12)5 = $156,042,385.3
    6 $235,000,000/(1.12)6 = $119,058,313.5
    7 $205,000,000/(1.12)7 = $92,731,589.14
    8 $165,000,000/(1.12)8 = $66,640,732.62
    9 -$75,000,000/(1.12)9 = -$27,045,751.87
    THE CONCEPT OF NPV
    NPV

    NPV Formula in Ms. Excel = NPV (rate,values)


    NPV Formula in after correction = NPV (rate,values) + Initial cost

    NPV = $139,740,017.61
    IRR

    IRR Formula in Ms. Excel = IRR (Values)


    IRR = 16%
    MIRR

    MIRR Formula in Ms. Excel = MIRR (values, finance rate, reinvest rate)

    MIRR = 14%
    PROFITABILITY INDEX

    Profitability Index = 1.15


    FINANCIAL DECISION
    Thank You

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