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The Mba Decision

Ben is considering pursuing an MBA to become an investment banker. He has narrowed his options to Wilton University or Mount Perry College. Wilton is a top program but costs $70,000 per year for two years, while Mount Perry is a newer one-year program for $85,000. After graduation, Ben estimates earning $110,000 at Wilton or $92,000 at Mount Perry. A financial analysis is needed to determine the best option.

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Shashwat Deshmukh
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109 views

The Mba Decision

Ben is considering pursuing an MBA to become an investment banker. He has narrowed his options to Wilton University or Mount Perry College. Wilton is a top program but costs $70,000 per year for two years, while Mount Perry is a newer one-year program for $85,000. After graduation, Ben estimates earning $110,000 at Wilton or $92,000 at Mount Perry. A financial analysis is needed to determine the best option.

Uploaded by

Shashwat Deshmukh
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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THE MBA DECISION

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 $65,000 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 40 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 $70,000, payable at the beginning of each school year. Books and other supplies
are estimated to cost $3,000 per year. Ben expects that after graduation from Wilton, he
will receive a job offer for about $110,000 per year, with a $20,000 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 $85,000 to be paid upon matriculation.
Books and other supplies for the program are expected to cost $4,500. Ben thinks that he will
receive an offer of $92,000 per year upon graduation, with an $18,000 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 schools offer a health insurance plan that will cost $3,000 per year, payable at the
beginning of the year. Ben also estimates that room and board expenses will cost $2,000 more
per year at both schools than his current expenses, payable at the beginning of each year. The
appropriate discount rate is 6.3 percent.
1. How does Ben’s age affect his decision to get an MBA?
2. What other, perhaps nonquantifiable factors affect Ben’s 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?

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