Please support your answer with calculations and take a management posture in your analysis. Thank you.

Raj Danielson graduated from university six 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 has narrowed his choice to either Assiniboine university or the university of Passy. Both schools encourage internships, but to get class credit for the internship, no salary can be accepted. Other than internships, neither school allows its students to work while enrolled in its MBA program. Rai currently works at the money management firm of Parsh and Sid. His annual salary at the firm is $55,000 and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expected to work for 38 more years. His current job includes fully paid health insurance plan, and his current average tax rate is 26 percent. Raj has a savings account with enough money to cover the entire cost of his MBA program. The Sentinel School of Business at Assiniboine university is on 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 $63,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $2500 per year. Raj expects that after graduation from Assiniboine, he will receive a job offer for about $98,000 per year, with $15,000 signing bonus. The salary at this job will increase at 4 precent per year. Because of the higher salary, his average income tax rate will increase to 31 precent. The Pond School of Business at the university of Passy began its MBA program 16 years ago. The Pond School of Business is smaller and less well known than the Sentinel school. It offers an accelerated one-year program, with a tuition cost of $80,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $3,500. Raj thinks that he will receive an offer of $81,000 per year upon graduation, with a $10,000 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 School offers a health insurance plan that will cost $300 per year, payable at the beginning of the year. Raj also estimates that room and board expenses will cost $20,000 per year at both schools. The appropriate discount rate is 6.5 percent.

Q1. How does Rajs age affect his decision to get an MBA (5 marks)

Q2. What other non-quantifiable factors affect Rajs decision to get an MBA (5 marks)

Q3. Assuming all salaries paid at the end of each year what is the best option for Raj from a strictly financial standpoint (65 marks)

Show your workings for the following three choices:

(i) remain at his current job (15 marks)

(ii) pursue an Assiniboine MBA (25 marks)

(iii) pursue a Passy MBA (25 marks)

Q4. Raj believes that the appropriate analysis is to calculate the future value of each option. How do you evaluation of this statement (5 marks)

Q5. What is the initial salary would Raj need to receive to make his indifferent between attending Assiniboine university and staying at his current position. Determination of breakeven initial salary (17 marks)

Q6. Suppose instead of being able to pay cash for his MBA Raj must borrow the money. The current borrowing rate is 5.4 percent How this affect his decision (3 marks)

Note: No calculation is required for Q6. However, if you wish, you may use the numbers

in the case to solve the question.

Use the following additional Assumptions when analyzing the case.

1. For question 3, note that there are three options to consider, namely:

(i) Remain at current job:

(ii) Assiniboine MBA:

(iii) Passy MBA:

2. Books and supplies, Room and board are all payable at the beginning of the year

Hint: Room and board will be the same for both MBA options, the impact or PV on both

programs is the same and hence, redundant. You can ignore it.

Alternatively, you can include it in your analysis. If you choose to include it, assume that

the expense will be incurred at the beginning of the year. While your answer will differ

by the PV of the room and board, it will not affect the choice/decision you are making.

3. Salaries and bonuses should be estimated on an after-tax basis.

4. If he decides to get an MBA, the after-tax salary will become an indirect cost (opportunity

cost) of doing the MBA. Hence, the lost salary should be considered as indirect cost of pursuing

the MBA degree