Christopher Cross graduated from college five 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 narrowed his choice to either

University of British Columbia or Thompson Rivers University. Although internships are encouraged by

both schools, to get class credit for internship, no salary can be paid. Other than internships, neither school

will allow its students to work while enrolled in its MBA program.

Christopher currently works at a fund management firm of Wilcox and Smith. His annual salary at the firm

is $$65,000$ per year, and his salary is expected to increase at $3\mathrm{.}0$ percent per year until retirement. He is

currently $25$ years old and expects to work till he is $65$ years old $(40$ years left to work$).$ His current job

includes a fully paid health insurance plan, and his current average tax rate is $30$ percent. Christopher has

a savings account with enough money to cover the entire cost of his MBA program.

The Sauder School of Business at University of British Columbia 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 $$87,000,$ payable at the beginning of each school year. Books and other supplies are estimated to cost

$$5,000$ per year. Christopher expects that after graduation from UBC, he will receive a job offer for about

$$110,000$ per year, with a $$35,000$ signing bonus. The salary at this job will increase $3\mathrm{.}7$ percent per year.

Because of the higher salary, his average income tax rate will increase to $37$ percent.

The School of Business and Economics at Thompson Rivers University began its MBA program in $2005.$

TRU is smaller and less well known than UBC. TRU 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 $$5,000.$ Christopher thinks that he will receive an offer of $$95,000$ per year upon graduation, with a

$$20,000$ signing bonus. The salary at this job will increase $4\mathrm{.}2$ percent per year. His average tax rate at this

level of income will be $35$ percent.

Both schools offer a health insurance plan that will cost $$3,000$ per year, payable at the beginning of the

year. Christopher estimates that room and board expenses will cost $$5,000$ more per year at both schools

than his current expenses, payable at the beginning of each year. The appropriate discount rate is $5\mathrm{.}2$

percent.

$1.$ How does Christopher$$s age affect his decision to get an MBA?

$2.$ What other, perhaps nonquantifiable, factors affect Christopher$$s decision to get an MBA?

$3.$ Assuming all salaries are paid at the end of each year, what is the best option for Christopher $$ strictly

from a financial standpoint?

$[$HINT: Use the constant growth annuity formula $$ Page $41$ of Lecture Note #$2]$

$4.$ Christopher believes that the appropriate analysis is to calculate the future value of each option. How

would you evaluate this statement?

$5.$ What initial salary would Christopher need to receive to make him indifferent between attending UBC

and staying at his current position?

$6.$ Suppose instead of being able to pay cash for his MBA, Christopher must borrow the money. The

borrowing rate is $3\mathrm{.}5$ percent. How would this affect his decision