Brief summary of the case
Ben Bates, 28 years old, graduated from college six years ago with a finance undergraduate degree. He is now working at the financial management company of Dewey and Louis. He expects to work for 38 years later. His goal is to become an investment banker. And 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. - The Ritter College of Business is under Wilton University: It offers the country’s leading MBA program. Its MBA degree requires two years of full-time enrollment at the university. The annual tuition is $63,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $2,500 per year. - The Bradley School of Business at Mount Perry College began its MBA program 6 years ago. The Bradley School is smaller and less well known than the Ritter College. Its program lasts one year, with a tuition cost of $80,000 to be paid upon matriculation. Books and other supplies for the program are estimated to cost $3,500. Both schools offer a health insurance plan that will cost $3000 per year, payable at the beginning of the year. Ben also estimates that room and board expenses will cost $20,000 per year at both schools. Besides, neither school will allow its students to work while enrolled in its MBA program. Here is Ben’s private financial information: His annual salary is $50,000 per year, and it is expected to increase at 3 percent per year until retirement. 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. Ben expects that after graduation from Wilton, he will receive a job offer for about $98,000 per year, with a $15,000 signing bonus. The salary for this job will be increased by 4 percent per year. His average income tax rate will rise to 31 percent. Besides, Ben thinks that he will receive an offer of $81,000 per year with a $10,000 signing bonus upon graduation from Mount Perry. The salary for this job will be increased by 3.5 percent per year. Therefore, his average tax rate at this level of income will be 29 percent. The appropriate discount rate is 6.5 percent. 2.
Answering the questions
Question 1: How does Ben’s age influence his decision to pursue an MBA? Ben Bates determines on earning an MBA to be able to find a job with higher income than the current one and to become an investment bank’s owner. To decide whether to pursue an MBA or not and when to enroll in the program, Ben must weigh, calculate the present value of his income sources, in which working time is an important factor to determine the present value of income sources. Ben is 28 years old now (he expects to work for 38 years from now). If Ben decides to learn for an MBA immediately, it takes Ben only 01-02 years to study and the left time for Ben to work will be around 36-37 years, but in return, with an MBA in hand, during the 36-37 year, Ben will have a good job with higher income than his current job. Conversely, if Ben decides to postpone the pursuit of an MBA, the left time for Ben to work with a more attractive salary after getting an MBA will be shorter, so Ben’s income flow value in this case also will affected. Thus, if deciding to get an MBA soon, Ben will be able to maximize his potential income. In addition, age may affect Ben’s learning ability when taking an MBA course. If he takes the MBA course when younger, his ability to acquire new knowledge will be better. Besides, age also affects his job opportunity after he receives the MBA. In fact, many companies prefer younger candidates to older ones. Therefore, the sooner Ben decides to get an MBA, the more job opportunities there will be for him after he finishes the MBA course. In short, age is one important factor affecting Ben’s determination to get an...
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