Bus 650 Week 1 Assignment
MBA Decision
Quent Mikeal
BUS650: Managerial Finance
Instructor: Rick Kwan
February 22, 2013
MBA Decision 1. Age is obviously an important factor. The younger an individual is, the more time there is for the (hopefully) increased salary to offset the cost of the decision to return to school for a MBA. The cost includes both the explicit costs such as tuition, as well as the opportunity cost of the lost salary. 2. Perhaps the most important non quantifiable factors would be whether or not he is married and if he has any children. With a spouse and/or children, he may be less inclined to return for an MBA (especially full-time) since his family may be less amenable to the time and money constraints imposed by classes. Other factors would include his willingness and desire to pursue an MBA, job satisfaction, and how important the prestige of a job is to him, regardless of the salary. 3. He has three choices: remain at his current job, pursue a Wilton MBA, or pursue a Mt. Perry MBA. We need to find the after tax value of each, Therefore: Remain at current job: After tax salary = $55,000(1 – .26) = $40,700 His salary will grow at 3 percent per year, so the present value of his after tax salary is: PV = C PV = $857,343.20 Wilton MBA: The direct costs of attending Wilton are the costs of tuition, books and other supplies, health insurance costs, and the increased room and board expenses. The present value of the direct costs is: PV of direct expenses = ($65,000 + 2,500 + 3,000 + 2,000) + ($65,000 + 2,500 + 3,000 + 2,500) / 1.065 PV of direct costs = $140,575.12
Quent Mikeal
BUS650: Managerial Finance
Instructor: Rick Kwan
February 22, 2013
MBA Decision 1. Age is obviously an important factor. The younger an individual is, the more time there is for the (hopefully) increased salary to offset the cost of the decision to return to school for a MBA. The cost includes both the explicit costs such as tuition, as well as the opportunity cost of the lost salary. 2. Perhaps the most important non quantifiable factors would be whether or not he is married and if he has any children. With a spouse and/or children, he may be less inclined to return for an MBA (especially full-time) since his family may be less amenable to the time and money constraints imposed by classes. Other factors would include his willingness and desire to pursue an MBA, job satisfaction, and how important the prestige of a job is to him, regardless of the salary. 3. He has three choices: remain at his current job, pursue a Wilton MBA, or pursue a Mt. Perry MBA. We need to find the after tax value of each, Therefore: Remain at current job: After tax salary = $55,000(1 – .26) = $40,700 His salary will grow at 3 percent per year, so the present value of his after tax salary is: PV = C PV = $857,343.20 Wilton MBA: The direct costs of attending Wilton are the costs of tuition, books and other supplies, health insurance costs, and the increased room and board expenses. The present value of the direct costs is: PV of direct expenses = ($65,000 + 2,500 + 3,000 + 2,000) + ($65,000 + 2,500 + 3,000 + 2,500) / 1.065 PV of direct costs = $140,575.12