The MBA Decision |
Case 1 |
FIN640 Corporate FinanceMisty SkinnerBrookline College |
Misty Skinner |
1. How does Ben’s age affect his decision to get an MBA?
We assume that both MBA program start at the beginning of the year, now is the beginning of the year at his age of 28 and he can enroll both program now. The following summary table shows the information he can use to make the decision.
Option | Dewey and Louis | Ritter College ,Wilton Univ (2 year program) | Mount Perry College (1 year program) |
Tuition | / | 65000 | 80000 |
Books and other supplies | / | 3000 | 4500 |
Health insurance plan | / | 3000 | 3000 |
Room and board expenses | / | 2000 ...view middle of the document...
317 | 999245.0894 |
Based on the table above, when T=10, at the beginning of year 11 the NPV1 will be higher than the NPV3; when T=13, at the beginning of year of 14, the NPV1 will be higher than the NPV2We can draw a conclusion that after 10 years, which means after 38 years old, going to the Bradley School won’t get a higher payoff; and after 13 years, which means after 41 years old, going to the Ritter College won’t get a higher payoff. And before 38 years old, it is better to pursue MBA as earlier as possible.
2. What other, perhaps no quantifiable factors, affect Ben’s decision to get an MBA?
As we know, the most important factor to choose a Business School is location. For example, definitely more job opportunities are offered in big cities, and also more choices for internship. Ben can meet more people to expend his networking which may benefit his job hunting as well. But the life expense will be much higher.
* Personal life plan
Going back to campus life is an important decision for a man to desire his future life. Does his family support him to give up his current job? What are the effects will bring to his marriage and family?
* Other preferences
Which school most closely offers a concentration in the career direction Ben wants to pursue? Which school will provide the lifestyle and other practical considerations he wants? Preferences, like focus on commercial banking or investment banking, campus environment, student/ professor ratio, also need evaluate.
3. Assuming all salaries are paid at the end of each year, what is the best option for Ben--from a strictly financial standpoint?
For not attending any MBA programs, Ben’s NPV is
For attending the Wilton University, Ben’s NPV is
For attending the Bradley School, Ben’s NPV is
So, the best option for Ben is attending the Ritter College.
4. What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position?
For attending Wilton University, NPV is
For not attending any college, NPV is 935283.4855.
Let two NPV be equal, we obtain
Solve S, S=78909.99466
So the initial salary should be 78909.99466 to make Ben indifferent between attending Wilton University and staying in his current position.
5. Suppose that instead of being able to pay cash for his MBA, Ben must borrow the money. The current borrowing rate is 5.4%. How would this affect his...