Jenny Kwon graduated from university six years ago with a finance undergraduate degree. Although she is satisfied with her current job, her goal is to become an investment banker. She feels that an MBA degree would allow her to achieve this goal. After examining schools, she has narrowed her choices down either Harvard University or Bolder University. She will not be able to work while going to school.

Jenny currently works at the money management firm of Huey & Luey. Her annual salary is $50,000 per year and it is expected to increase at 3% per year until retirement. She is currently 28 years old and expects to work for another 35 more years. Her current job includes a fully paid health insurance plan and her current tax rate is 26%. She has an account with enough money to cover the entire cost of the MBA program.

Harvard is one of the top MBA programs in the country. The program is two years and it costs $60,000 per year, paid at the beginning of each year. Books and other costs are $2,500 per year. Jenny believes she will get a job offer for $95,000 upon graduation with a $15,000 signing bonus. The salary will increase by 4% per year. Because of the higher salary, her average tax rate will increase to 31% per year.

Bolder University is not as prestigious. It offers a one-year accelerated MBA that costs $75,000 upon starting. Books and supplies are $3,500. Jenny thinks that if she graduates from Bolder she will get an offer for $78,000 with a $10,000 signing bonus.Salary would increase by 3.5% per year and her average tax rate would be 29%.

Both schools offer a discounted health care plan at $3,500 per year and housing and other costs are estimated at $20,000 per year at either school.

The appropriate discount rate is 6.5%.

a)(1 mark) How does age affect Sally's decision to get an MBA?

b) (1 mark) What other, non-quantifiable factors affect Jenny's decision to get an MBA?

c)(8 marks) Assuming all salaries are paid at the end of each year, which is the best decision for Sally from a strictly financial perspective?

d) (2 marks) Sally believes the appropriate analysis is to calculate the future value of each option. Do you agree with this statement? Why or why not?

e)(4 marks) What initial new salary would make Sally indifferent between attending Harvard or staying at her current job (from a financial perspective only)?

f)(4 marks) Suppose instead of paying cash for her MBA, Sally instead has to borrow. Assume the current borrowing rate is 5%. How would this affect her decision?