Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to Wilton University. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, the school will not allow its students to work while enrolled in its MBA program.

Bens annual salary at East Coast Yachts is $53,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 40 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Ben has a saving account with enough money to cover the entire cost of his MBA program.

The Ritter College of Business at Wilton University is one of the top MBA programs in the

country. The MBA degree requires two years of full-time enrollment at the university. The annual tuition is $58,000. payable at the beginning of each school year. Books and other supplies are estimated to cost $2,500 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $100,000 per year, with a $15,000 signing bonus. The salary at this job will increase at 4 percent per year. Because of the higher salary, his average income tax rate will increase to 31 percent.

The Bradley School of Business at Mount Perry College began its MBA program 16 years ago. The Bradley School is similar and less well known than the Ritter College. Bradley offers an accelerated, one-year program, with a tuition cost of $71,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $3,500. Ben thinks that after graduate from Mount Perry, he will receive an offer of $88,000 per year with a $12,000 signing bonus. The salary at this job will increase at 3.5 percent per year. His average income tax rate at this level of income will be 29 percent.

Both schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Ben also estimates that room and board expresses will cost $2,000 more per year at both schools than his current expenses payable at the beginning of each year. The appropriate discount rate is 6.5 percent. Assume all salaries are paid at the end of each year.

Question: What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position? Assume his tax rate after graduating from Wilton University will be 31 percent regardless of his income level.

With guid for similar answer

Case study 2 3 40 NO3 There are 3 option have to be calculated EAST COAST YOUTS 01511 PV: 9 53000 - 13180 39226 Current job: Formula 39 22000 =530001-026) 9:37 After tax salary grow discount rate 65% 40 PV 826.167.00 C1390065-00311141031065/40) 1.03 Jobs PV = 39,220 =826169.08 Wilton University 0.065-0.03 9 Cost Annualition Supplies 58 000.00 2.500.00 L0.065-0.03 9 3) "O RITTER COLLEGE OF BUSINESS (WILTON UNIVERITY] L SY! 2 3 159) 40 Pl. 9 19 2000 9:41. - Spor -55.000 15 250 s. 150 3.000 - 30 10.750 000 - low 2000 - hostb. SS.CO -Essoo boulb PV = 19000 -22 1440345.55 -9838.64 LION6.95 = }(40,845.35 14201991 Price 2015-0.04 1.04 os 104785 Clots 74354545.29 BRADLEY SCHOOL OF BUSINESS (mount PERRY COLLEGE] 2 40 PV-? 257 ) - 91.000 Rooo - 3500 - 3480 food - 4000 -19500 88000 - Sto 12450 9:3. : 3.5/. 8520 -34220 39 1.635 -30 Too 139929229 of- - ) 1 Lobs 0.065-0.035 PV = 62,480 = 128506316 1,36857227 1377,292.27 1.065 Wilton University Mount Perry College: Cost Annual tullion Supplies Insurance Plan Board Total cost Salary Net Value 50 000.00 2.500.00 3.000.00 2.000.00 65.500.00 -39.220.00 -104.720.00 7100000 3.5000 3.000.00 2.000.00 79.500.00 3.220.00 -118.720.00 68.00000 12.000 30 Salary Bonus Tax Rate Tax Salary Tax-Bonus After tax salary After tax bonus 392203 25 520.00 3.48000 100 000 00 15 000.00 31% 31 000.00 4650.00 69,000.00 10.350.00 40 396 60 -30 046 60 1.640.343.35 C15110065-01-04 065)38) 1,610.796.75 3.520.00 39 2200 -307000 1396.282.271600065-50357 1:035/165391) 1368.592.27 PV2 Net Value Increasing Rate Discount rate 4% 65% Total cost -65,500.00 Y1 9832864 C155/1065 Y2 1420.173.91 =C1691.0652) Total Value 1.256.345.27 the best choice to study at Witon University -79,500.00 1205063 16 E91065 . 1.205.56.16 825109.08 -65500-104120 - 300464+ & (1065) 005-0,04 (1015)' 1-) 38 1.01 1065 2 (1.065) ? BEFORE Bfforze 42,482,24 X JAX 0.69 98326.68 25490.8638 291657.8 3016 S8 0.40549954 0.59450846 = 20 264.14 CG 1152924.49 1939290 31 56822577 including as 70264 1416 Case study 2 3 40 NO3 There are 3 option have to be calculated EAST COAST YOUTS 01511 PV: 9 53000 - 13180 39226 Current job: Formula 39 22000 =530001-026) 9:37 After tax salary grow discount rate 65% 40 PV 826.167.00 C1390065-00311141031065/40) 1.03 Jobs PV = 39,220 =826169.08 Wilton University 0.065-0.03 9 Cost Annualition Supplies 58 000.00 2.500.00 L0.065-0.03 9 3) "O RITTER COLLEGE OF BUSINESS (WILTON UNIVERITY] L SY! 2 3 159) 40 Pl. 9 19 2000 9:41. - Spor -55.000 15 250 s. 150 3.000 - 30 10.750 000 - low 2000 - hostb. SS.CO -Essoo boulb PV = 19000 -22 1440345.55 -9838.64 LION6.95 = }(40,845.35 14201991 Price 2015-0.04 1.04 os 104785 Clots 74354545.29 BRADLEY SCHOOL OF BUSINESS (mount PERRY COLLEGE] 2 40 PV-? 257 ) - 91.000 Rooo - 3500 - 3480 food - 4000 -19500 88000 - Sto 12450 9:3. : 3.5/. 8520 -34220 39 1.635 -30 Too 139929229 of- - ) 1 Lobs 0.065-0.035 PV = 62,480 = 128506316 1,36857227 1377,292.27 1.065 Wilton University Mount Perry College: Cost Annual tullion Supplies Insurance Plan Board Total cost Salary Net Value 50 000.00 2.500.00 3.000.00 2.000.00 65.500.00 -39.220.00 -104.720.00 7100000 3.5000 3.000.00 2.000.00 79.500.00 3.220.00 -118.720.00 68.00000 12.000 30 Salary Bonus Tax Rate Tax Salary Tax-Bonus After tax salary After tax bonus 392203 25 520.00 3.48000 100 000 00 15 000.00 31% 31 000.00 4650.00 69,000.00 10.350.00 40 396 60 -30 046 60 1.640.343.35 C15110065-01-04 065)38) 1,610.796.75 3.520.00 39 2200 -307000 1396.282.271600065-50357 1:035/165391) 1368.592.27 PV2 Net Value Increasing Rate Discount rate 4% 65% Total cost -65,500.00 Y1 9832864 C155/1065 Y2 1420.173.91 =C1691.0652) Total Value 1.256.345.27 the best choice to study at Witon University -79,500.00 1205063 16 E91065 . 1.205.56.16 825109.08 -65500-104120 - 300464+ & (1065) 005-0,04 (1015)' 1-) 38 1.01 1065 2 (1.065) ? BEFORE Bfforze 42,482,24 X JAX 0.69 98326.68 25490.8638 291657.8 3016 S8 0.40549954 0.59450846 = 20 264.14 CG 1152924.49 1939290 31 56822577 including as 70264 1416