Assume today is August 1, 2006. Charles is 30 years old and has a Bachelor of Science degree in computer science. He is currently employed as a Tier 1 field service representative for a telephone corporation and earns $38,000 a year that he anticipates will grow at 3% per year. Charles wants to retire at age 65 and has just begun to think about the future.

Charles has $75,000 that he recently inherited from his grandfather. He invested this money in 10-yer Treasury Bonds. He is considering whether he should further his education and use his inheritance money to pay for it.
He investigated a couple of options and is asking for your help as a financial planning intern to determine the financial consequences associated with each option. Charles has already been accepted to both of these programs, and could start either one soon.
One alternative that he is considering is attaining a certification in network design. This certification would automatically promote him to a Tier 2 field service representative in his company. The base salary for a Tier 2 representative is $10,000 more than what he currently earns and he anticipates that this salary differential will grow at a rate of 3% a year as long as he keeps working. The certification program requires the completion of 20 web-based courses and a score of 80% or better on an exam at the end of the course. He has learned that the average amount of time necessary to finish the program is one year. The total cost of the program is $5,000, due when he enrolls in the program. Because he will do all the work for the certification on her own time, Charles does not expect to lose any income during the certification.
Another option is going back to school for an MBA degree. With an MBA, he expects to be promoted to a managerial position in his current firm. The managerial position pays $20,000 a year more than his current position. Charles expects that this salary differential will also grow at a rate of 3% per year for as long as he keeps working. The evening program which will take three years to complete, costs $25,000 per year, due at the beginning of each his three years in school. Because he will attend classes in the evening, Charles doesn't expect to lose any income while he is earning his MBA if he chooses to undertake the MBA.

1. Determine the interest rate he is currently earning on his inheritance by going to Yahool! Finance (http://finance.yahoo.com) and clicking on the 10-year bond link in the market summary. Then go to "Historical Prices" and enter the appropriate date, August 1, 2006, to obtain the closing yield or interest rate he is earning. Use this interest rate as the discount rate for the remainder of this problem.
2. Create a timeline in Excel for his current situation, as well as the certification program and MBA degree options, using the following assumptions:
a. Salaries for the year are paid only once, at the end of the year.
b. The salary increase becomes effective immediately upon graduating from the MBA program or being certified. That is, because the increases become effective immediately but salaries are paid at the end of the year, the first salary increase will be paid exactly one year after graduation or certification.
3. Calculate the present value of the salary differential for completing the certification program. Subtract the cost of the program to get the NPV of undertaking the certification program.
4. Calculate the present value of the salary differential for completing the MBA degree. Calculate the present value of the cost of the MBA program. Based on your calculations, determine the NPV for undertaking the MBA.
5. Base on this analysis, recommend if Charles should pursue the certification program or the MBA degree? Both? Neither? Next assume that only the MBA degree is available to Charles. What is the greatest amount of tuition (paid in three yearly installments) that Charles should pay in order to pursue the opportunity to earn his MBA?