Ben Ofosu 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 either GIMPA or UGBS. 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. His annual salary at the firm is GHS 55,000 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 UGBS at University of Ghana (Legon) 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 GHS 63,000, payable at the beginning of each school year. Books and other supplies are estimated to cost GHS 2,500 per year. Ben expects that after graduation from Legon, he will receive a job offer for about GHS 98,000 per year, with a GHS 15,000 signing bonus. The salary at this job will increase at 4% per year. Because of the higher salary, his average income tax rate will increase to 31 percent. The Green Hills School of Business at GIMPA began its MBA program 16 years ago. The Green Hills School is smaller and less well known than the UGBS. Green Hills offers an accelerated onyear program, with a tuition cost of GHS 80,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost GHS 3,500. Ben thinks that he will receive an offer of GHS 81,000 per ear upon graduation, with a GHS 10,000 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 29 percent.

Both schools offer a health insurance plan that will cost GHS 3,000 per year, payable at the beginning of the year. Ben also estimates that room and board expenses will also cost GHS 20,000 per year at both schools. The appropriate discount rate is 6.5 percent.

Question

6. Suppose instead of being able to pay cash for his MBA, Ben must borrow the money. The current borrowing rate is 5.4 percent. How would this affect his decision?