Answer:
Yes, you should take the MBA because the NPV of taking the MBA is positive.
Explanation:
the total economic costs of taking the MBA program include the lost wages + the costs of taking the MBA and any interest you could have earned by investing it on something else = ($50,000 x 1.03) + ($50,000 x 1.03²) + (2 x $30,000 x 1.08) = $51,500 + $53,045 + $64,800 = $169,345
the present value of your total economic costs:
$51,500/1.08 + $53,045/1.08² + $32,400/1.08 + $32,400/1.08² = $47,685.19 + $45,477.54 + $30,000 + $27,777.78 = $150,940.51
if you continued to work, your salary at year 3 would be $54,636.35 and it would continue to increase by 3% every year. The salary that you can earn with an MBA is $80,000 and it will grow by 4% per year. I used an excel spreadsheet to calculate future salaries and the differential amount between them. Then I calculated the PV at the beginning of year 3 of the differential income.
The PV of the differential income today = $560,281.31 /1.08³ = $444,769.38
the NPV of taking an MBA = $444,769.38 - $150,940.51 = $293,828.87
