22 Jul HOW WOULD THIS AFFECT HIS DECISION?
Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is s Show more 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 this 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 the internship 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 $53000 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 his current average tax rate is 26 percent. 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 $58000 payable at the beginning of each school year. Books and other supplies are estimated to cost $2000 per year. Ben expects that after graduation from Wilton he will receive a job offer for about $87000 per year with a $10000 signing bonus. The salary at this job will increase at 4 percent per year. Because of the higher salary his average income tax rate will increase to 31 percent. 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 $75000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $4200. Ben thinks that he will receive an offer of $78000 per year upon graduation with a $8000 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 schools offer a health insurance plan that will cost $3000 per year payable at the beginning of the year. Ben has also found that both school offer graduate housing. His room and board expense will decrease by $4000 per year at either school he attends. The appropriate discount rate is 6.5 percent. QUESTIONS 1.How does Bens age affect his decision to get an MBA? 2.What other perhaps nonquantifiable factors affect Bens decision to get an MBA? 3.Assuming all salaries are paid at the end of each year what is the best option for Ben from a strictly financial standpoint? 4.Ben believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement? 5.What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position? 6.Suppose instead of being able to pay cash for his MBA Ben must borrow the money. The current borrowing rate is 5.4 percent. How would this affect his decision? Show less
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