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, be has narrowed his choice to either Wilton University or Mount Perry College. Although Internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program. Ben Currently works at the money management firm of Dewcy and Louis. His Annual salary at the firm 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 38 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Ben has a savings 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 \$2000 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $87,000 per year, with a $10,000 signing bonus. The salary at this job will increase at 4 percent er 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 smaller and less well known than Ritter College. Bradley offers an accelerated one-year program, with a tuition cost of $75,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $4,200. Ben thinks that be will 1 receive an offer of $78,000 per year upon graduation, with an $8,000 signing bonus, The salary at this job will increase at 3.5 percent per year. His average tax rate at this level of income will be at 29%. Both Schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Ben has also found that both schools offer graduate housing. His room and board expenses will decrease by $4,000 per year at either school he attends. The appropriale discount rate is 5.5 nement Both Schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Ben has also found that both schools offer graduate housing. His room and board expenses will decrease by $4,000 per year at either school he attends. The appropriate discount rate is 5.5 percent. Answer the following questions (Q1-Q3). 1. Age is obviously an important factor. The younger an individual is, the more time there is for the (hopefully) increased salary to offset the cost of the decision to return to school for an MBA. 2. Perhaps the most important non-quantifiable factors would be whether or not he is married and if he has any children. With a spouse and/or children, he may be less inclined to return for an MBA since his family may be less amenable to the time and money constraints imposed by classes, Other factors would include his willingness and desire to pursue an MBA, job satisfaction, and how important the prestige of a job is to him, regardless of the salary. 3. He has three choices: remain at his current job, pursue a Wilton MBA, or pursue a Mt. Perry MBA. In this analysis, the reduction in room and board costs are relevant since they are a saved expense. We need to find the after-tax value of each, so: Remain at current job: After-tax salary =$53,000(1.26) =$39,220 His salary will grow at 3 pereent per year, so the present value of his after-tax salary is: PV=C{1[(1+g)/(1+r)]}/(rg)]=$39,220{[1(1+.03)/(1+.055)]338}/(.0550.3)=$938,149.63 Wilton MBA: Costs: The direet costs include tuition, books and supplies, and health insurance. We need to also include the savings in room and board as a reduction of costs. 2 Fotal diret costs =558,000+2,000+3,0004,000=559,000 PV of duect costs =559,000+59,000/(1.055)=5114,924.17 Salary: PV of after tax bonus paid in 2 years 510,000(131)/1.055/2=56,199.32 Afler-tas salary =587,000(131)=560,030 His salary will grow at 4 peroent por year. We muat aliso remember thas be will now enly work for 36 yean, so the presemt value of his after-tax salary is: PV=C(1[(1+R)/(1+r))/(rg)]=$60.030[11[(1+.04)/(1+.055)]36)/(05504)=$1,612,050.35 Since the first salary payment will be roceived three yean from today, so we need to discount this for two years to find the value today, which will be: PV=51,512,050.35/1.0552PV=51,448,350.53 So, the total value of a Willon MBA is: Valoc=.5114,924,17+6,199,32+1,448,350.53=51,339,625,68 Mewnet Roon MRA: Costs: Salary: So, the total value of a Mount Perry MBA is: Value =1 3 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, be has narrowed his choice to either Wilton University or Mount Perry College. Although Internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program. Ben Currently works at the money management firm of Dewcy and Louis. His Annual salary at the firm 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 38 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Ben has a savings 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 \$2000 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $87,000 per year, with a $10,000 signing bonus. The salary at this job will increase at 4 percent er 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 smaller and less well known than Ritter College. Bradley offers an accelerated one-year program, with a tuition cost of $75,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $4,200. Ben thinks that be will 1 receive an offer of $78,000 per year upon graduation, with an $8,000 signing bonus, The salary at this job will increase at 3.5 percent per year. His average tax rate at this level of income will be at 29%. Both Schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Ben has also found that both schools offer graduate housing. His room and board expenses will decrease by $4,000 per year at either school he attends. The appropriale discount rate is 5.5 nement Both Schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Ben has also found that both schools offer graduate housing. His room and board expenses will decrease by $4,000 per year at either school he attends. The appropriate discount rate is 5.5 percent. Answer the following questions (Q1-Q3). 1. Age is obviously an important factor. The younger an individual is, the more time there is for the (hopefully) increased salary to offset the cost of the decision to return to school for an MBA. 2. Perhaps the most important non-quantifiable factors would be whether or not he is married and if he has any children. With a spouse and/or children, he may be less inclined to return for an MBA since his family may be less amenable to the time and money constraints imposed by classes, Other factors would include his willingness and desire to pursue an MBA, job satisfaction, and how important the prestige of a job is to him, regardless of the salary. 3. He has three choices: remain at his current job, pursue a Wilton MBA, or pursue a Mt. Perry MBA. In this analysis, the reduction in room and board costs are relevant since they are a saved expense. We need to find the after-tax value of each, so: Remain at current job: After-tax salary =$53,000(1.26) =$39,220 His salary will grow at 3 pereent per year, so the present value of his after-tax salary is: PV=C{1[(1+g)/(1+r)]}/(rg)]=$39,220{[1(1+.03)/(1+.055)]338}/(.0550.3)=$938,149.63 Wilton MBA: Costs: The direet costs include tuition, books and supplies, and health insurance. We need to also include the savings in room and board as a reduction of costs. 2 Fotal diret costs =558,000+2,000+3,0004,000=559,000 PV of duect costs =559,000+59,000/(1.055)=5114,924.17 Salary: PV of after tax bonus paid in 2 years 510,000(131)/1.055/2=56,199.32 Afler-tas salary =587,000(131)=560,030 His salary will grow at 4 peroent por year. We muat aliso remember thas be will now enly work for 36 yean, so the presemt value of his after-tax salary is: PV=C(1[(1+R)/(1+r))/(rg)]=$60.030[11[(1+.04)/(1+.055)]36)/(05504)=$1,612,050.35 Since the first salary payment will be roceived three yean from today, so we need to discount this for two years to find the value today, which will be: PV=51,512,050.35/1.0552PV=51,448,350.53 So, the total value of a Willon MBA is: Valoc=.5114,924,17+6,199,32+1,448,350.53=51,339,625,68 Mewnet Roon MRA: Costs: Salary: So, the total value of a Mount Perry MBA is: Value =1 3