Survey of Finance and Engineering Economics

Presented byMohammed Ali AlsendiNadia Mohammed Daabis

InstructorProfessor Wajeeh Elali

Time Value of Money Time value of money refers to the

concept that a dollar today is worth more than a dollar tomorrow.

Case study

NATASHA, 30 years old and has Bachelor of science degree in computer science.

Working as Tier 2 field service representative for a telephony corporation located in Seattle, Washington.

She has $75,000 that recently inherited from her aunt, and invested this money in 10 years treasury bond.

Terms of Common Inputs Current Salary $38,000/- She don’t expect to lose any income

during the Certification or while she earning her MBA.

In both cases, she expect her salary differential will also grow at a rate of 3% per year, for as long as she keep working.

Keep using the interest rate as discount rate for the remainder of the problem

CAMPARISME SUMMARY

Option 1 "Network Design"

Option 2 "MBA"

Position Tier 3Managerial

Position

Cost $5,000 $25,000 / Year

Period 1 year 3 years

Salery Increasment

$10,000 $20,000

Payment Due End of 1 yearBegin of each

year

RiskAbove 80% on an exam at end of

course

Evening program which will take 3

years to complete

Summary

Timeline

Option 1 Option 2

t0 t1 t2 t3

$38,000

$39,140 $50,614.20

$52,132.62

$38,000 x 3% ($39,140+$10,000) x 3%

$50,614.20 x 3%

($5,000)($25,000) ($25,000) ($25,000)

$39,140 $40,314.20 $41,523.626

$38,000 x 3% $39,140x 3% $39,140 x 3%

t4

$53,696.59

$63,369.33($41,523.626+$20,000)

x 3%

$52,132.62x 3%

Timeline Graph

1 2 3 4 5 6 7 8$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Current SutationCertificateMBA

Yearl

y I

ncom

e

Treasury Bond

Amount $75,000 Period 10 years

Rate 3.52% (1st June, 2009)*

A marketable, fixed-interest government debt security with a maturity of more than 10 years. Treasury bond make interest payment annualy and the income that holders receive is only taxed the federal level.

t0 t1 t2 t10

($75,000)

Treasury Bond$9027.19

$9027.19

$9027.19

…..

PVA(ordinary) = PMT 1 – (1+k)-n

K

$75,000 = x 1 – (1+0.0352)-10

0.0352

PMT = $9027.190

[ ][ ]

Certificate

PV4 = (FV4+TB) (1+r)-4

= (53,696.6+ 9027.19) (1+0.0352) -

4

PV4 = $54,617.934

NPV = PV – Certificate cost = 54.617.934– 5000 = $49,617.934

t0 t1 t2 t3

$38,000

$39,140 $50,614.20

$52,132.62

$38,000 x 3% ($39,140+$10,000) x 3%

$50,614.20 x 3%

($5,000)t4

$53,696.60

$52,132.62x 3%

MBA

PV4 = (FV4+TB) (1+r)-4

= (62,123.626+ 9027.19) (1+0.0352) -4

PV4 = $71,151.686

1

PMT(due) = PMT 1-(1+r)-n (1+r) r = 25,000 1-(1+0.0352)-2

(1+0.352) 0.352PMT(due) = $49,149.91

[ ][ ]

2

t0 t1 t2 t3

$38,000

($25,000) ($25,000) ($25,000)

$39,140 $40,314.20 $41,523.626

$38,000 x 3% $39,140x 3% $40,314.20 x 3%

PMT(MBA cost) = 25,000 + 49,149.91 = $ 74,149.91

t4

$62,123.626

($41.523.626+$20,000) x 3%

From 1 , 2

NPV = PV3 – Cost of MBA

= 71151.686 - 74,149.91NPV = $(2,998.223)

MBA

Financial Planning Advice

I will suggest Natasha as a Financial Planning to enroll in the Certificate Program based on her desire that she is not expect to lose any income during the certificate. Moreover, its impossible to implement this condition if she choose the MBA program unless she sell a fraction of her future earning from her treasury bond or she could barrow money from other recourses.

Thank you