THE MBA DECISION

Ben Bates graduated from college six year ago with a finance undergraduate degree. Also he is satisfied with his current job, his goal is to become an investment Banker. He feels that an MBA degree would allowed him to achieved his goal. After examining schools, he has narrowed his choose to either Wilton University or Mount Perry College. Although internship are encouraged by both schools, to get class credit from his internship no salaries can be paid. Other than internship, neither school will allowed its students to work in its MBA program.

Ben currently work at the money management firm of Dewey & Louis. His annual salary at the firma is $ 53,000 per year and his salary is expected to increase at 3 % per year until retirement, Hi is currently 28 years old and expect to work for 38 more years. His current job includes a fully paid health insurance plan and his current average tax rate is 26%. Ben has a savings account with enough money to cover the entire cost of his MBA program.

The Ritter college for Business at Wilton University is one of the top MBA program in the country. The MBA degree requires 2 years of full time enrollment at the University. The annual tuition is $58,000 dollars, payable at the beginning of the annual school year. Books and other supplies are estimated to cost $2,000 per year. Ben expects than after graduation form Wilton, he will receive a job offer for $87,000 per year, with a $10,000 signing bonus. The salary of this job will increase at 4% per year. Because of their higher salaries his average income tax rate will increase to 31%.

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 as the Ritter College. Bradley offers an accelerated one-year program with a tuition cost of $75,000 dollars to be paid upon matriculation. Book and other supplies for the program are expected to cost, $4,200 dollars. Ben thinks that he will receive an offer $78,000 per year upon graduation, with an $8,000 signing bonuses. The salary at this job will increase 3.5% per year. His average tax rate at this level of income will be 29%.

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 booth schools offered 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%.

QUESTIONS

1. What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position? Additionally, Suppose instead of between able to pay cash for his MBA. Ben must borrow the money. The current borrowing rate is 5.4%. How would this affect his decision?