The MBA Decision Case Study

Ben Bates graduated from college 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 his goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for internships no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program.

Ben currently works at the money management firm of Dewey and Louis. His annual salary at the firm is $57,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 38 more years. His current job includes a fully paid health insurance plan, and Ben has a savings account with enough money to cover the entire cost of his MBA program.

The Ritter College of Business at Wilton University is one 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 $58,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $2,000 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $87,000 per year, with a $10,000 signing bonus. The salary at this job will increase at a rate of 4 percent per year.

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 than the Ritter College. Bradley offers an accelerated one-year program, with a tuition cost of $75,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $4,200. Ben thinks that he will receive an offer of $78,000 per year upon graduation, with an $8,000 signing bonus. The salary at his job will increase at a rate of 3.5 percent per year.

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 both schools offer graduate housing. His room and board expenses will decrease by $4,000 per year at either school he attends.

Assuming a discount rate of 5.5 percent, should Ben stay at this current job, attend Wilton University, or attend Mount Perry College? Evaluate this decision from a purely financial standpoint. Ignore taxes in your calculations.

Note: Dont include any cash flows in time 0, start with time 1. For the MBA options assume that the salary begins the year after school is finished. For example, salary would begin in year 3 for Wilton and 2 for Mount Perry.

\begin{tabular}{|c|c|c|c|c|c|c|c|c|c|c|c|c|} \hline 1 & \multirow{3}{*}{\multicolumn{3}{|c|}{ The MBA Decision Case Study }} & \multicolumn{2}{|l|}{ Discount Rate } & \multicolumn{2}{|l|}{5.50%} & & & & & \\ \hline 2 & & & & Health Insurnc & & $3,000 & & & & & & \\ \hline 3 & & & & Housing Saving & & 4,000 & & & & & & \\ \hline 4 & & & & & & & & & & & & \\ \hline 5 & & \multicolumn{2}{|c|}{ Option A: No MBA } & \multicolumn{5}{|c|}{ Option B: MBAat Wilton } & \multicolumn{4}{|c|}{ Option C: MBA at Mount Perry } \\ \hline 6 & & current salary & 57,000 & Tuition & 58000 & & & & Tuition & 75000 & & \\ \hline 7 & & growth rate & 3.0% & Books/Supplie & 2000 & & & & Books/Supplies & 4200 & & \\ \hline 8 & & & & Salary & 87000 & & & & Salary & 78000 & & \\ \hline 9 & & & & signing bonus & 10000 & & & & signing bonus & 8000 & & \\ \hline 10 & & & & growth rate & 4% & & & & growth rate & 3.50% & & \\ \hline 11 & & & & & & & & & & & & \\ \hline 12 & Year & Salary & & School Expens: & Health Insurar & Housing Savin & Salary/Bonus & Total CF & School Expenses & Health Insurance & Housing Saving: Salary/Bonus & Total CF \\ \hline 13 & 1 & 58,710 & & $(60,000) & $(3,000) & 4,000 & & (59,000) & & & & \\ \hline 14 & 2 & 60,471 & & $(60,000) & $(3,000) & 4,000 & & (59,000) & & & & \\ \hline 15 & 3 & 62,285 & & & & & 97,000 & 97,000 & \multicolumn{2}{|c|}{ *This should be 87,000+10,000} & & \\ \hline 16 & 4 & 64,154 & & & & & 90,480 & 90,480 & This should be = & =87,000(1+4%) & & \\ \hline 17 & 5 & 66,079 & & & & & 94,099 & 94,099 & \multicolumn{3}{|c|}{ These should be = last years salary (14%)} & \\ \hline 18 & 6 & 68,061 & & & & & 97,863 & 97,863 & & & & \\ \hline 19 & 7 & 70,103 & & & & & 101,778 & 101,778 & & & & \\ \hline 20 & 8 & 72,206 & & & & & 105,849 & 105,849 & & & & \\ \hline 21 & 9 & 74,372 & & & & & 110,083 & 110,083 & & & & \\ \hline 22 & 10 & 76,603 & & & & & 114,486 & 114,486 & & & & \\ \hline 23 & 11 & 78,901 & & & & & 119,066 & 119,066 & & & & \\ \hline 24 & 12 & 81,268 & & & & & 123,828 & 123,828 & & & & \\ \hline 25 & 13 & 83,706 & & & & & 128,781 & 128,781 & & & & \\ \hline 26 & 14 & 86,218 & & & & & 133,933 & 133,933 & & & & \\ \hline 27 & 15 & 88,804 & & & & & 139,290 & 139,290 & & & & \\ \hline 28 & 16 & 91,468 & & & & & 144,861 & 144,861 & & & & \\ \hline 29 & 17 & 94,212 & & & & & 150,656 & 150,656 & & & & \\ \hline 30 & 18 & 97,039 & & & & & 156,682 & 156,682 & & & & \\ \hline 31 & 19 & 99,950 & & & & & 162,949 & 162,949 & & & & \\ \hline 32 & 20 & 102,948 & & & & & 169,467 & 169,467 & & & & \\ \hline 33 & 21 & 106,037 & & & & & 176,246 & 176,246 & & & & \\ \hline 34 & 22 & 109,218 & & & & & 183,296 & 183,296 & & & & \\ \hline 35 & 23 & 112,494 & & & & & 190,628 & 190,628 & & & & \\ \hline 36 & 24 & 115,869 & & & & & 198,253 & 198,253 & & & & \\ \hline 37 & 25 & 119,345 & & & & & 206,183 & 206,183 & & & & \\ \hline 38 & 26 & 122,926 & & & & & 214,430 & 214,430 & & & & \\ \hline 39 & 27 & 126,613 & & & & & 223,007 & 223,007 & & & & \\ \hline 40 & 28 & 130,412 & & & & & 231,928 & 231,928 & & & & \\ \hline 41 & 29 & 134,324 & & & & & 241,205 & 241,205 & & & & \\ \hline 42 & 30 & 138,354 & & & & & 250,853 & 250,853 & & & & \\ \hline 43 & 31 & 142,505 & & & & & 260,887 & 260,887 & & & & \\ \hline 44 & 32 & 146,780 & & & & & 271,323 & 271,323 & & & & \\ \hline 45 & 33 & 151,183 & & & & & 282,176 & 282,176 & & & & \\ \hline 46 & 34 & 155,719 & & & & & 293,463 & 293,463 & & & & \\ \hline 47 & 35 & 160,390 & & & & & 305,201 & 305,201 & & & & \\ \hline 48 & 36 & 165,202 & & & & & 317,409 & 317,409 & & & & \\ \hline 49 & 37 & 170,158 & & & & & 330,106 & 330,106 & & & & \\ \hline 50 & 38 & 175,263 & & & & & 343,310 & 343,310 & & & & \\ \hline 51 & & & & & & & & & & & & \\ \hline 52 & & Present Value & $1,404,354 & & & & Present Value & $1,998,642 & & & Present Value & \\ \hline \end{tabular}