Lexy Halliday graduated four years ago with degrees in accounting and finance. She has been employed in the finance department at Thorvaldsen Conglomerated (TC) since graduation. She is satisfied with her current job, but is considering an MBA degree to increase her skills and her advancement prospects. She has examined a number of MBA schools. She has narrowed her choices to 1) staying in her current job, 2) getting an MBA at Arrington University (AU) or 3) getting an MBA at Boyden College (BC).

Lexy’s annual salary at TC is $70,000 per year and she expects it to increase at 3.5 percent per year until retirement. She is currently 26 years old and plans to retire in 30 years. Her current job includes a fully paid health insurance plan and her current average tax rate is 22 percent. Lexy has a savings account with enough money to cover the entire cost of her MBA program.

The Mason College of Business at Arrington University is a top MBA program. An AU MBA degree requires two years of full-time enrollment. Annual tuition is $60,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $3,000 per year. Lexy expects that after graduation from AU, she will receive a job offer for about $100,000 per year, with a $20,000 signing bonus. She expects the salary at this job to increase at about 4.5 percent per year. Because of the higher salary, her average income tax rate will increase to 30 percent.

The Jensen School of Business at Boyden College (BC) began its MBA program 16 years ago. The Jensen School is smaller and less well known than the school at AU. BC offers an accelerated, one-year program, with a tuition cost of $50,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $4,000. Lexy expects to receive an offer of $85,000 per year with a $10,000 signing bonus after graduation from BC. The salary at this job is expected to increase at 4% per year and her average income tax rate at this level of income is expected to be 25 percent.

Assume that once Lexy makes her decision she will immediately begin school. She will need to move and her health insurance and living expenses will change. Both schools offer a health insurance plan that will cost $6,000 per year payable at the beginning of the year. Moving expenses are $2,000 and Lexy estimates that room and board expenses for either school will cost $5,000 more per year than her current living expenses, payable at the beginning of the year. Lexy estimates that the appropriate discount rate for her analysis is 7.1 percent. Assume that all salaries are paid at the end of each year.