For this week's mini case, students will be assigned to work in a group. Students will work together in these groups outside of the online environment (e.g. Google docs) to collaborate and complete the minicase "The MBA Decision" on page 191 of the textbook. Each group will provide a single, coordinated answer to the case study. Group members are to determine how the work load is to be divided and each member of the group will receive the same score.

The response from each group is to include:

1. A title page with the names of each member of the group.

2. A brief overview of the minicase with appropriate details.

3. The group's response to each of the 6 questions.

Mini case:

Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is satisfied with his cur- rent 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 Wilton University or Mount Perry College. Although intern- ships 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 Dewey 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 $2,000 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 in- crease 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 smaller and less well known than the Ritter College. Bradley

offers an accelerated one-year program, with a tuition cost of $75,000 to be paid upon matriculation. Books and other sup- plies for the program are expected to cost $4,200. Ben thinks that he will receive an offer of $78,000 per year upon gradua- tion, 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 29 percent.

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 6.5 percent.

QUESTIONS

1. How does Bens age affect his decision to get an MBA?

2. What other, perhaps nonquantifiable, factors affect Bens

decision to get an MBA?

3. Assuming all salaries are paid at the end of each year,

what is the best option for Ben from a strictly financial standpoint?

4. Ben 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 Ben need to receive to make

him indifferent between attending Wilton University and staying in his current position? 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?