The Mba Decision
ECO 527 | The MBA Decision | Case 1 | Group 4 | | |
|
1. How does Ben’s age affect his decision to get an MBA?
We assume that both MBA program start at the beginning of the year, now is the beginning of the year at his age of 28 and he can enroll both program now. The following summary table shows the information he can use to make the decision.
Option | Dewey and Louis | Ritter College ,Wilton Univ (2 year program) | Mount Perry College (1 year program) | Tuition | / | 65000 | 80000 | Books and other supplies | / | 3000 | 4500 | Health insurance plan | / | 3000 | 3000 | Room and board expenses | / | 2000 | 2000 | Expect salary(annul) | 60000 | 110000 | 92000 | Growth rate | 3% | 4% | 3.5% | Bonus (tax free) | / | 20000 | 18000 | Average Tax rate | 26% | 31% | 29% | Discount rate | 6.5% | 6.5% | 6.5% |
Based on the information above, we can find a timing that gong to the Business School is not a good deal because the net present value of future cash flows would be lower than that of staying at the current job. In addition, we assume Ben will retire at the end of 68 years old; and after T years, it will be worse for Ben to get MBA compared with continuing his current job. We will compare the NPVs of these 3 options at the beginning of (T+1) year so that we can get T.
Option 1: if Ben still working at current job
NPV1=
Option 2: if Ben starts to get MBA in Ritter College after T years
NPV2=
Option 3: if Ben starts to get MBA in Bradley School after T years
NPV3=
T | NPV1 | NPV2 | NPV3 | 9 | 1067754.522 | 1208708.69 | 1104289.74 | 10 | 1079226.637 | 1176398.654 | 1079143.186 | 11 | 1089706.481 | 1143311.935 | 1053267.746 | 12 | 1099077.418 | 1109429.863 | 1026642.294 | 13 | 1107213.667 | 1074733.317 | 999245.0894 |
Based on the table above, when T=10, at the beginning of year 11 the NPV1 will be higher than the NPV3; when T=13, at
|
1. How does Ben’s age affect his decision to get an MBA?
We assume that both MBA program start at the beginning of the year, now is the beginning of the year at his age of 28 and he can enroll both program now. The following summary table shows the information he can use to make the decision.
Option | Dewey and Louis | Ritter College ,Wilton Univ (2 year program) | Mount Perry College (1 year program) | Tuition | / | 65000 | 80000 | Books and other supplies | / | 3000 | 4500 | Health insurance plan | / | 3000 | 3000 | Room and board expenses | / | 2000 | 2000 | Expect salary(annul) | 60000 | 110000 | 92000 | Growth rate | 3% | 4% | 3.5% | Bonus (tax free) | / | 20000 | 18000 | Average Tax rate | 26% | 31% | 29% | Discount rate | 6.5% | 6.5% | 6.5% |
Based on the information above, we can find a timing that gong to the Business School is not a good deal because the net present value of future cash flows would be lower than that of staying at the current job. In addition, we assume Ben will retire at the end of 68 years old; and after T years, it will be worse for Ben to get MBA compared with continuing his current job. We will compare the NPVs of these 3 options at the beginning of (T+1) year so that we can get T.
Option 1: if Ben still working at current job
NPV1=
Option 2: if Ben starts to get MBA in Ritter College after T years
NPV2=
Option 3: if Ben starts to get MBA in Bradley School after T years
NPV3=
T | NPV1 | NPV2 | NPV3 | 9 | 1067754.522 | 1208708.69 | 1104289.74 | 10 | 1079226.637 | 1176398.654 | 1079143.186 | 11 | 1089706.481 | 1143311.935 | 1053267.746 | 12 | 1099077.418 | 1109429.863 | 1026642.294 | 13 | 1107213.667 | 1074733.317 | 999245.0894 |
Based on the table above, when T=10, at the beginning of year 11 the NPV1 will be higher than the NPV3; when T=13, at