The MBA Decision-Q1456

Q.1)

How does Ben's age afect his decision to get an MBA? Criterion

Dewey & Lewis

 Ttion  Ttion !ees Boo%s and sies Heath insrance oo* & +oard e,enses ,ected saary rowth rate23aary) Bons A6erage ta, rate Discont rate

" " " " /0$$$ (4 " -/4 /.04

itter coege21 yr) #$$$$ ($$$ ($$$ -$$$ 11$$$$ 54 -$$$$ (14 /.04

Base Based d on on the the in!o in!or* r*at atio ion n a+o a+o6e 6e we can can nd nd a ti* ti*in ing g tha thatt g Cons Consid ider erin ing g he he wi wi ret retir ire e at at /G /G and and a!te a!terr T year years s it it wi wi + +e ew +egining o! T1 years so that we can get T. Considering diferent cases" Case17

8! he contines with the crren

:;<=

$.#5>/0$$$>1.$(@T$.$/0"$.$

Case-7

8! he starts with MBA at iter co

:;<=

$./F>22211$$$$2$.$/0"$.$5)

Case(7

8! he starts MBA at Bradey sch

:;<=

$.#1>F-$$$$.$/0"$.$(0>1"21

 T F 1$ 11 11(

:;<1 110/#(5.$/0/ 11/F1/-.1GF# 11G$010.(0511F$//#.-$( 11FF5G1.5#-/

:;<1-$G#$G./F$11#/(FG./05# 115((11.F(0# 11$F5-F.G/-G 1$#5#((.(1#

Based Based on the ta+e ta+e a+o6 a+o6e e when when T=1$J T=1$J at the +eginn +eginning ing o! y +e hige higerr than than :;<:;<-.. Ke Ke can can draw draw a conc concs sion ion that that a!ter a!ter 1$ a!te a!terr 1( yrs yrs whic which h *ean *eans s a!te a!terr 51 year years s odJ odJ goin going g to ritt ritter er c ossi+e.

Mont erry coege21 yr) G0$$$ 50$$ ($$$ -$$$ F-$$$ (.0$4 1G$$$ -F4 /.04 ing to a B"schoo is not a good dea +ecase the :;< o! !tre cash Iows wo rse !or hi* to get an MBA co*ared with contining his crrent 9o+. Co*arin

9o+ (>1"21$.$(1$.$/0)@25$"T)E ege a!ter T years )>21"221$.$5)21$.$/0))@(G"T))21$.$/0)@-)-$$$$21$.$/0)@-"#($$$2 o a!ter T years $.$(01$.$/0)@(F"T21$.$/0)@-E1G$$$21$.$/0)"GF0$$ :;<( 11$5-GF.#5$1$#F15(.1G/1$0(-/#.#5// 1$-//5-.-F5FFF-50.$GF/0 ar 11 the :;<1 wi +e higher than :;<( when T=1(J at the +eginning o! year rs which *eans a!ter (Gyrs odJ going to the +radey schoo wont +e get a hig oege wont get a higher ayofJ and +e!ore (Gyrs odJ it is +etter to rse MB

+e ower than the crrent 9o+. the :;< o! ( years at the

$.$/0)"#($$$

15J the :;<1 wi er ayofJ and aas earier as

Current Position Age -G Kor% Li!e 5$

;osition 3aary Crrent ;osition /0J$$$

3igning Bons 3aary hi%e $ (4

Kiton" itter Coege

-$J$$$

54

1GJ$$$

(.0$4

11$J$$$

Bradey 3choo F-J$$$

Answer 57

From the FV value calculation it is evident that the best option for him to choose is Wilton-Ritter

A:3K 07 Annuity factor for !en present position Salary (after tax needs to receive no" to be indi#erent to attendin$ Wilson

%he &!A 'ecision

 Ta, ate -/4

Heath 8nsrance incded? yes

Money in Hand Corse 2*ins ta,) Dration 5GJ1$$ :A

:A

(14

yes

#0JF$$

-

15$J$$$

-F4

yes

/0J(-$

1

G0J$$$

Ttion ees

Assumin$ salary paid at end of each period and t

Position Salary Crrent ;osition 1$1(--5 Kiton" itter 3ch 1G$5F-G Bradey 3choo

resent 6ae o! reset 6ae o! resent 6ae saary 8ncding saary o! +ons Bons 1$1(--5 1J$1(J--5 10F1((1 11J5-5 1J/$-J#0/

15/-GF/ 1J(#(J/111J-/G 1J(G5JG#F Assumin$ salary paid at end of each period and )*

Crrent ;osition 1$1(--5 Kiton" itter 3ch 1G$5F-G

1$1(--5 10F1((1

1#/((

1/$GF/5

Bradey 3choo

1J(#(J/1-

1/F$1

1J(F$J01(

15/-GF/

Cacated sing annity growth !or*a +,.   ./0,,1+,

uca on

xpenses

Boo%s & Discont 3. Heath 8nsr. Board & Lodge ate :A :A :A /.0$4

 Tota ,ences

;resent
/J$$$

/J$$$

5J$$$

/.0$4

10/J$$$

101J-(F

5J0$$

(J$$$

-J$$$

/.0$4

F5J0$$

F5J0$$

x paid on bonus

Less d :et ;resent ,.
!tre 6ae 1-0G$-/1.F--1 +4566+/62/2 1/$-1550./0$#-

101J-(F

1J$1(J--(.#G 1-J0G$J-/1.F777 777

F5J0$$

1J-F/J$1(

1/$F1(F0.(//5

e*aining Kor% Li!e

(G (F

8uestion 1 %he &!A 'ecision Crrent ;osition Age -G Kor% Li!e 5$

;osition

3aary

3igning Bons

Crrent ;osition

/0J$$$

$

itter Coege

11$J$$$

-$J$$$

Bradey 3choo

F-J$$$

1GJ$$$

Hi%e

Ta, ate

Heath Corse 8nsrance Money in Hand Dration Ttion ees

(4

-/4 yes

5GJ1$$

54

(14 yes

#0JF$$ -

15$J$$$

(.0$4

-F4 yes

/0J(-$ 1

G0J$$$

Crrent ;osition itter 3choo Bradey 3choo

:A

resent 6ae o! resent saary 6ae o! 8ncding ;< o! saary +ons Bons 1$1(--5 1J$1(J--5 1G$5F-G 10F1((1.-5#( 115-5.(1# 1J/$-J#0/ 15/-GF/ 1(#(/11.#$1- 11-/#./$/ 1J(G5JG#F

ducation xpense Boo%s & 3.

Heath 8nsr.

Board & Lodge

:A

Discont ate

Tota

;resent
e*aining Kor% Li!e

/.0$4 /J$$$

/J$$$

5J$$$

/.0$4

10/J$$$

101J-(F

(G

5J0$$

(J$$$

-J$$$

/.0$4

F5J0$$

F5J0$$

(F

net present tota resent )et Present value interest 6ae o! Value after aid on edcation Less d interest oan oan ,. $ 1$1(--(.##/$$1( 1J$1(J--5 1-JG/( 15GJGG$ 101J-(F 1J501J01/ 1J($-J/(/ 0J1$( F(J0-5 F5J0$$ 1J-F$J(#F 1J1F/JG00

interest rate

0.54 0.54