Current Situation: (Tier 2 Engineer Level)

Her salary stream has a present value calculated as follows:

C = $70,000 (income)
Growth rate = 2%
Expected Retirement Age = 65
Discount Rate = 3.21%
It is stated that she will be paid her salary of $70,000 at the end of the year and annually after that. If she is 30
today, she will be 31 at the end of the year. The salary will be paid until she retires at 65, 35 years from now.
Year

Ag
e

31

32

33

34

35

36

37

38

39

10

40

11

41

12

42

13

43

Current salary
$
70,000.00
$
71,400.00
$
72,828.00
$
74,284.56
$
75,770.25
$
77,285.66
$
78,831.37
$
80,408.00
$
82,016.16
$
83,656.48
$
85,329.61
$
87,036.20
$
88,776.93

Present Value of
Current Salary
$
67,822.89
$
67,027.75
$
66,241.94
$
65,465.34
$
64,697.85
$
63,939.35
$
63,189.75
$
62,448.93
$
61,716.80
$
60,993.25
$
60,278.19
$
59,571.51
$
58,873.11

14

44

15

45

16

46

17

47

18

48

19

49

20

50

21

51

22

52

23

53

24

54

25

55

26

56

27

57

28

58

29

59

30

60

31
32

61
62

$
90,552.46
$
92,363.51
$
94,210.78
$
96,095.00
$
98,016.90
$
99,977.24
$
101,976.78
$
104,016.32
$
106,096.64
$
108,218.58
$
110,382.95
$
112,590.61
$
114,842.42
$
117,139.27
$
119,482.05
$
121,871.69
$
124,309.13
$
126,795.31
$

$
58,182.90
$
57,500.79
$
56,826.66
$
56,160.45
$
55,502.04
$
54,851.35
$
54,208.29
$
53,572.77
$
52,944.70
$
52,324.00
$
51,710.57
$
51,104.33
$
50,505.20
$
49,913.09
$
49,327.93
$
48,749.63
$
48,178.10
$
47,613.28
$

33

63

34

64

35

65

129,331.22
$
131,917.84
$
134,556.20
$
137,247.32
Sum of present
Value

47,055.07
$
46,503.42
$
45,958.23
$
45,419.43
$
1,956,378.91

Total PV for her current Salary stream is $1,956,379

She also has $100,000 in present value of the Treasury Bonds.
Total Net PV is $1,956,379 + $100,000 = $2,056,379.

Pursuing Certification Course : (Tier 3 Engineer Level)

Given Information:
Because she is completing the program during Year 1, she will only be paid as a Tier 2 during Year 1.
($70,000)
At the end of Year 2 she will be paid the Tier 2 Salary plus the differential of $10,000.
The differential grows at 1% each year while the Tier 2 Salary grows at 2% each year.
Cost of the Program = $25,000 and due at the beginning of the program (immediately).
Ye
ar
1

A
ge

Tier 2
salary

31

$
70,000.00

32

$
71,400.00

33

$
72,828.00

34

$
74,284.56

35

$
75,770.25

36

$
77,285.66

37

$
78,831.37

38

$
80,408.00

39
40

$
82,016.16
$

8
9
10

Tier 3
Bonus
$
10,000.0
0
$
10,100.0
0
$
10,201.0
0
$
10,303.0
1
$
10,406.0
4
$
10,510.1
0
$
10,615.2
0
$
10,721.3
5
$

Tier 3
Salary
$
70,000.00

Present
Value
$
67,822.89

$
81,400.00

$
76,415.39

$
82,928.00

$
75,428.57

$
84,485.56

$
74,455.26

$
86,073.26

$
73,495.27

$
87,691.70

$
72,548.39

$
89,341.47

$
71,614.45

$
91,023.20

$
70,693.24

$
92,737.51
$

$
69,784.57
$

83,656.48
11

41

$
85,329.61

12

42

$
87,036.20

13

43

$
88,776.93

14

44

$
90,552.46

15

45

$
92,363.51

16

46

$
94,210.78

17

47

$
96,095.00

48

$
98,016.90

19

49

$
99,977.24

20

50

$
101,976.78

21

51

$
104,016.32

22

52

$
106,096.64

18

10,828.5
7
$
10,936.8
5
$
11,046.2
2
$
11,156.6
8
$
11,268.2
5
$
11,380.9
3
$
11,494.7
4
$
11,609.6
9
$
11,725.7
9
$
11,843.0
4
$
11,961.4
7
$
12,081.0
9
$
12,201.9
0

94,485.05

68,888.27

$
96,266.46

$
68,004.16

$
98,082.42

$
67,132.04

$
99,933.61
$
101,820.7
1
$
103,744.4
5
$
105,705.5
3
$
107,704.6
9
$
109,742.6
9
$
111,820.2
8
$
113,938.2
6
$
116,097.4
1
$
118,298.5
4

$
66,271.75
$
65,423.12
$
64,585.97
$
63,760.14
$
62,945.46
$
62,141.76
$
61,348.90
$
60,566.71
$
59,795.04
$
59,033.74

23

53

$
108,218.58

24

54

$
110,382.95

25

55

$
112,590.61

26

56

$
114,842.42

57

$
117,139.27

28

58

$
119,482.05

29

59

$
121,871.69

30

60

$
124,309.13

31

61

$
126,795.31

32

62

$
129,331.22

33

63

$
131,917.84

34
35

64
65

27

$
134,556.20
$
137,247.32

$
12,323.9
2
$
12,447.1
6
$
12,571.6
3
$
12,697.3
5
$
12,824.3
2
$
12,952.5
6
$
13,082.0
9
$
13,212.9
1
$
13,345.0
4
$
13,478.4
9
$
13,613.2
7
$
13,749.4
1
$
13,886.9

$
120,542.5
0
$
122,830.1
1
$
125,162.2
4
$
127,539.7
7
$
129,963.5
9
$
132,434.6
2
$
134,953.7
8
$
137,522.0
4
$
140,140.3
5
$
142,809.7
1
$
145,531.1
2
$
148,305.6
1
$
151,134.2

$
58,282.65
$
57,541.63
$
56,810.53
$
56,089.22
$
55,377.54
$
54,675.37
$
53,982.56
$
53,298.99
$
52,624.51
$
51,959.01
$
51,302.34
$
50,654.39
$
50,015.04

2
Sum of
Present
Value

$
2,184,768
.87

Certification Cost :
Cost
Incurr
ed

At
Ag
e
30

Cost (Paid
at the
beginning of
the year)
$25,000

The net present value of Natashas salary stream is $2,184,769 - $25,000 = $2,159,769.
She will spend $25,000 of her $100,000 inheritance investment on the Certification program. She will
leave with $100,000 - $25,000 = $75,000 investment value.
Total Net Present Value = $2,184,769 + $75,000 (Treasury Bond) = $2,259,769

Pursuing MBA Course : (Manager Level)

Given Information:
She earns nothing in Years 1 and 2.
In Year 3, her salary is $115k and grows by 3% annually after that.
Discount rate used was the 30 year Treasury bond rate.
Ye
ar
1
2
3
4
5
6
7
8
9
10
11
12
13
14

A
g
e
3
1
3
2
3
3
3
4
3
5
3
6
3
7
3
8
3
9
4
0
4
1
4
2
4
3
4

MBA
Salary
$
$
$
115,000.00
$
118,450.00
$
122,003.50
$
125,663.61
$
129,433.51
$
133,316.52
$
137,316.01
$
141,435.49
$
145,678.56
$
150,048.92
$
154,550.38
$

Present
Value
$
$
$
104,600.20
$
104,387.37
$
104,174.97
$
103,963.01
$
103,751.48
$
103,540.38
$
103,329.70
$
103,119.46
$
102,909.64
$
102,700.26
$
102,491.29
$

15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32

4
4
5
4
6
4
7
4
8
4
9
5
0
5
1
5
2
5
3
5
4
5
5
5
6
5
7
5
8
5
9
6
0
6
1
6
2

159,186.90
$
163,962.50
$
168,881.38
$
173,947.82
$
179,166.25
$
184,541.24
$
190,077.48
$
195,779.80
$
201,653.20
$
207,702.79
$
213,933.88
$
220,351.89
$
226,962.45
$
233,771.32
$
240,784.46
$
248,008.00
$
255,448.24
$
263,111.68
$
271,005.03

102,282.76
$
102,074.64
$
101,866.95
$
101,659.68
$
101,452.84
$
101,246.41
$
101,040.41
$
100,834.82
$
100,629.66
$
100,424.91
$
100,220.57
$
100,016.66
$
99,813.15
$
99,610.07
$
99,407.39
$
99,205.13
$
99,003.28
$
98,801.84
$
98,600.80

33
34
35

Cost
Incurr
ed

At
Ag
e

Cost

30

$50,000

31

$50,000

6
3
6
4
6
5

$
279,135.18
$
287,509.24
$
296,134.52
Sum of
Present
Value

$
98,400.18
$
98,199.97
$
98,000.16
$
3,341,760.0
5

Presen
t Value
$50,000
$48,445

PV of Cost of MBA:
Total PV of Costs of MBA: $98,445
The net present value of Natashas Salary Stream $3,341,760.
She will spend all but $1,555 of her $100,000 inheritance investment on the MBA program.
Total Net Present Value = $3,341,760 + $1,555 = $3,343,315.