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Monday, January 10, 2005

Calculating the value of my BTech with NPV

The other day I came across the NPV(Net Present Value) method for deciding the present value of an investment by aggregating the cash flows expected from it in the future to a net present value. The relevant page is here.
Now what is the value of my BTech degree. Assuming a starting average salary of 2.6 lacs (gross) & a yearly increase of 10% (inclusive of inflation). Modify the formula a bit so that cash flows are in geometric progression. Take a working life of 60-22=38 years.
Do the math & you get a figure of 1.26 crores. After taxes & all you are left with 88 lakhs.

For a MBA?
Starting average salary = 6 lacs, yearly increase =15% , working life = 60- 24(for a MBA straight out of graduation)=36 yrs.
Gross=7.2 crores & after taxes & all = 5.04 crores.

The reasons for doing a MBA in India are clear from an economic perspective.The figures here are a bit on the lower side, since the salaries will probably rise much faster & one is likely to change employers many times which will lead to much higher salary jumps. But these figures do provide a baseline figure.

My BTech in this hugely subsidized setup costs <1.5>might be able to generate (@ 15% per annum) 3.03 crores.

Moral of the story - If you have an uncle or aunty who's working at Goldman Sachs, you better not get into engineering. Just give your money to you uncle/aunt & watch it grow. On the other hand if you don't have any such contacts (GS won't take you on as a client if you have only 1.5 lacs to invest) better to get that BTech as fast as possible & quicly go for a MBA. Considering that per capita income in India = Rs 21,000 a BTech+MBA in India is an unbeatable combo for a marked improvement in standard of living. More analysis on this later. Got to meet a prof in 10 mins.


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