Kim is trying to decide between two full-time admissions offers from prestigious MBA 2-year programs. She is considering an in-state university and a top-tier private university. She had decided that both programs will offer her an excellent education and provide great career prospects after graduation. However, the cost differences are significant, and she really wants to avoid being in major debt after her MBA. Kim wants to base her decision primarily on the quickest payback period for her MBA education.

Table 1 shows the annual costs for the two programs next year.

Program Costs Per Year	Mid-Tier Program	Top-Tier Program Tuition
Tuition	21,500	74,700
Room & Board	18,000	36,300

Kim is not sure which career path she wants to pursue, but she also understands that her career options and starting salary will likely depend on her performance in the program. She is confident that she can earn at least a 3.25 GPA with a probability of 60%. She feels there is a 25% probability she could reach 3.50 GPA and only a 15% chance she will earn a 3.75 GPA or higher.

Based on the MBA program websites, the average starting salaries are presented in Table 2. Kim knew from Career Services at these Programs that students who earn a GPA of around 3.50 will see offers at the mean salary number. But if students have a GPA closer to 3.25 then salary offers are around 5% below the mean. And students who earn a 3.75 or higher GPA are likely to see offers as high as 15% above the mean.

TABLE 2: Average Starting Salaries Based on Career Path

Career Path	Mid-Tier Program	Top-Tier Program Tuition
Consulting	108,909	152,000
Finance / Accounting	93,666	174,000
Supply Chain / Operations	94,833	138,000
Marketing / Sales	99,979	112,000

Kim also learned from Career Services that students graduating with higher GPAs were more likely to pursue Consulting and Finance careers. Career Services provided her with the information in Table 3 indicating which career paths students are likely to pursue based on the final GPA. Although Kim preferred a career in Marketing, she was intrigued by the other areas especially since starting salaries were much higher for Consulting and Finance offers.

TABLE 3: Percentage of Students Pursuing Different Careers Based on GPA

Career Path	3.75 GPA	3.50 GPA	3.25 GPA
Consulting	35%	28%	10%
Finance / Accounting	30%	26%	35%
Supply Chain / Operations	20%	23%	35%
Marketing / Sales	15%	22%	20%

Kim wants to use Decision Tree Analysis to help her decide on which MBA program offer she should accept. Answer the following questions and clearly state any assumptions you are making.

Questions:

5) If Kim knew that her final GPA was 3.75, then how would that impact the breakeven point for the two programs?

States of Nature Decision alternatives Consulting-Mid-tier $ Finance/Accounting-Mid-tier $ Supply Chain/Operations - Mid $ Marketing/Sales-Mid-Tier $ Degree of optimism GPA 3.25 103,463.55 $ 88,982.70 $ 90,091.35 $ 94.980.05 $ 60% GPA 3.5 108,909.00 $ 93,666.00 $ 94,833.00 $ 99,979.00 $ 25% Expected value for each decision GPA 3.75 alternative 125,245.35 $ 108,092.18 107,715.90 $ 92,963.51 109,057.95 $ 94,121.75 114,975.85 $ 99,229.16 15% Decision alternatives Consulting-Top-tier $ Finance/Accounting-Top $ Supply Chain/Operations $ Marketing/Sales-Top-Tie $ Degree of optimism States of Nature Expected value for each decision GPA 3.25 GPA 3.5 GPA 3.75 alternative 144,400.00 $ 152,000.00 $ 174,800.00 $ 150,860.00 165,300.00 $ 174,000.00 $200,100.00 $ 172,695.00 131,100.00 $ 138,000.00 $ 158,700.00 $ 136,965.00 106,400.00 $ 112,000.00 $ 128,800.00 $ 111,160.00 60% 25% 15% $ 62,078.13 $ 27,227.25 S $ 99,180.00 $ 43,500.00 $ 30,015.00$ S 18,786.80 $ $ $ $ S 108,092.18 113,496.79 Salary Yr 2 119,171.63 Salary Yr 3 125,130.21 Salary Yr 4 131,386.72 Salary Yr 5 $ 172,695.00 181,329.75 Salary Yr 2 190,396.24 Salary Yr 3 199,916.05 Salary Yr 4 209,911.85 Salary Yr 5 $ $ Mid-Tier Time/year Top-Tier Time/year Difference Income (cumulative) Cost 1 S 108,092 $ 2 $ 221,589 $ 3 $ 340,761 S 4 $ 465,891 $ 5 $ 597,278 $ 209,000 209,000 209,000 209,000 209,000 (100,908) 12,589 131,761 256,891 388,278 Income (cumulative) Cost 1 $ 172,695 $ 2 $ 354,025 $ 3 $ 544,421 $ 4 $ 744,337 $ 5 $ 954,249 $ 352,000 352,000 352,000 352,000 352,000 Difference (179,305) 2,025 192,421 392,337 602,249 1.883534833 $ 209,000 $ 209,000 1.98827557 S 352,000 $ 352,000 Response: Based on the breakeven payoff analysis Kim should choose the Mid-Tier MBA program at the in state university as she eanrs the cost back in salary in 1.88 vs 1.98 years. Breakeven Analysis-Mid-Tier MBA Program Breakeven Analysis -Top-Tier MBA Program Salary or MBA Cost (5) $650.000 $600,000 $550,000 $500,000 $450,000 $400.000 $350.000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 S- Salary or MBA Cost $1,050,000 $975,000 $900,000 $825.000 $750.000 $675,000 $600,000 $525,000 $450,000 $375,000 $300,000 $225,000 $150.000 $75,000 S- 0 1 2 3 4 5 6 0 1 2 4. 5 6 Years 3 Years Income (cumulative) Cost Tutti