ECO 526 – Financial Economics 2
The MBA Decision - A Case Study
Ben Bates is 28 years old and expects to work for another 40 years. This tells us that he would retire at the age of 68.
However, if Ben decides to enroll in an MBA program, the following things would happen * He would incur a cost for his higher education
(for two years at Wilton University and for one year at Mount Perry College) * He would not receive a salary during the time that he is enrolled in his MBA program, * He would earn a salary for fewer number of years after completion of the MBA program (for 38 years if he goes to Wilton, or for 39 years if he goes to Mount Perry College) It is these considerations that Ben would need to take into account in making a decision whether to get an MBA degree or not.
Other, perhaps non-quantifiable, factors that may affect Ben’s decision to get an MBA are: 1. There is no guarantee of getting the expected amount of salary income per annum after completion of the MBA degree program. 2. The MBA degree may (or may not) be of the exact same monetary value in future. 3. Possible changes in the employment situation within the economy.
Assuming all salaries are paid at the end of each year, what is the best option for Ben, from a strictly financial standpoint?
Ben Bates has three alternatives:
* Continue to work at Dewey and Louis until retirement
* Enroll at Ritter College of Business for an MBA program * Enroll at the Bradley School of Business for the MBA program To make a decision purely from a financial standpoint, he must look at the present value of each alternative and choose that alternative, which gives him the highest value. The following information has been given:
| Current Job
| Ritter College
| Bradley College
| Tuition Fee
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