Good Case Study On The MBA Decision

MBA DECISION

Advancing one’s studies is paramount in career development, as it is; MBA is one of the popular master’s programs. One must put into consideration so many things before embarking on a master’s program. The costs, time duration to complete the program, the location are some of the factors that determine one’s decision. Ben Gates needs to make a sound decision before starting his master’s program, whether to take up the program in Wilton University or Mount Perry College.
1. How does ben’s age affect his decision to get an MBA?
Ben’s age will greatly affect his decision of taking up a master’s program. This is based on, time value of money. If he takes longer to start, the present value of his future cash flows will be less so the sooner he starts the better for him. Taking a master’s program entails a lot of activities, and one must be committed, it also demands a huge amount of energy, and hence making it easier to study when one is younger.
2. What other, perhaps non-quantifiable factor affects Ben’s decision to get an MBA?
The school’s popularity; a popular college will give him higher chances of securing a better job after graduating. What the university specializes in is also a factor of consideration-the fact that he wants to take an MBA may prompt him to go to a college that specializes more in business. The proximity of the college to prospective employers, the prestige of the school and the way in which graduates are placed in jobs is also a very important element. The network that a graduate school offers their students is also an important factor.
3. Assuming all salaries are paid at the end of each year, what is the best option for ben?
Salary=$50,000, tax rate=26%.Cash after tax is; (100%-26%) 50,000=37000$
Discount rate(r) =6.5%
Growth rate (g) =3%
Time = 40

The present value is;

PV=C (1-((1+g)/(1+r))^t/ r-g)
PV=$37000(1-((1+3%)/(1+6.5))^40/6.5%-3%)
PV=$37000(1-((1.03)(1.065))^40/0.035)
PV=$37000(1-0.621/0.035)
PV=$37000(0.738/0.035)
PV=$780,171.43

Getting the MBA at Wilton University

A.The Present Value of growing annuity.
Salary=$90, 000,r =6.5%,growth rate=4%,T=38years,tax rate =31%
Cf=90,000(69%)=62,100
PV=1,476759.014B.PV of signing bonus
Signing Bonus=15,000
t=6.5%
T=38years
PV=FV/(1+r)^g
PV=15,000/(1+0.065)^38
PV=$13,225.18
C.PV of costs for 2years=
Cost=$65,000+$2500+$3000+$2000=72,500
PV of costs=$131,950
D.PV of the foregone salary
PV of growing annuity of costs=68,398.2

Getting an MBA at Mount Perry College

A.PV of growing annuity PV of salary of 39years (40-1)
CV=78000(71%)=55380
PV=1,241,065.8
PV of signing bonus=$10,580.1446
PV of costs=$78,399.82
PV of 1year salary=34,780
The best option for ben is getting the MBA at Wilton University.He expects to get more salary after completion with a higher signing bonus which has a total present value of  $1,489,984.194.His total expenses there is $131,950 while that of mount perry amounts to $78,399.82.Ben has a savings account for that so he should take up the MBA at Wilton University.
 4. Ben believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement?

If ben keeps his current job,his future value will be,

FV=PV*(1+r)^t
FV=$9,677,066.464
2. Getting the MBA at Wilton University
Fv of salary for 38 years=$16,165,696.97
FV of signing bonus=$15,000.33
Fv of costs=$149,660.99
FV of the two years foregone salary=$77,578.95
3.Getting the MBA at Mount Perry College
A.Fv of salary for 39 years=14,468,699.98
B.FV of signing bonus=12,000.26
c.FV of costs=$83,495.81
D.Fv of foregone salary=$37,040.7
Considering the future values above, it is clear that studying at Wilton University will be his best choice since his future cash flows will be higher than studying in Mount Perry College.
5. What initial salary would ben need to receive to make him indifferent between attending Wilton University and staying in his current position?
Staying in his current position has a present value of $780,171.43 while getting an MBA at Wilton University will be $1,476,759.014.
When PV1=PV2
21.06C1=62,100*23.78
C1=
C1 = $70,120.51282
The amount indicated above is after tax with a rate of 31%.the salary before deduction will be(131%*70,120.51)=91,156.67.The initial amount he would receive to make him indifferent would be,$91,156.67.
6. Suppose, instead of being 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?There are two options:
1. Getting the MBA from Wilton University
He needs to borrow $145,000 at an interest rate of 5.4%.Supposing he pays out the principle plus the interest in a 6 year period; he will have paid $198,797.84.
2. To study at mount Perry University,
He needs to borrow $83,500.if he pays over a period of 6years; he will have paid $ 114,480.14
If ben decides to borrow, he can still study at Wilton University as he will be able to repay; however, it will affect his decision to study and he would in turn prefer borrowing to finance his studies than using up his savings.