The MBA Decision Ben Bates graduated from college six years ago with a finance undergraduate degree

The MBA Decision

Ben Bates graduated from
college six years ago with a finance undergraduate degree. Since graduation, he
has been employed in the finance department at East Coast Yachts.Although he is satisfied with
his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to
achieve his goal. After examiningschools, he has narrowed his choice to
either Wilton University or Mount Perrycollege.Although internships are encouraged by both schools, to get class credit for
theinternship, no salary can be
paid. Other than internships, neither school will allow itsstudents to
work while enrolled in its MBA program.
Ben currently works at the
money management firm of Dewey and Louis. His annualsalary at the firm is$53,000per year, and his salary
expected to increase at 3 % per year until retirement. He is currently 28
years old and expects to work for 40 more years. His current job includes a
fully paid health insurance plan, and his current average tax rate is 26%. Ben has a savings account with enough money
to cover the entire cost of his MBA program.
The Ritter College of Business at the Wilton University is one of
the top MBA programs in the country. The MBA degree requires two years of full
time enrollment at the university. The
annual tuition is $58,000, payable at the beginning of each school year. Books
and other supplies are estimated to cost$2500per
year. Ben expects that after graduation from Wilton, he will receive a job
offer for about$100,000per year, with a $15,000signing bonus. The salary at
this job will increase at 4 % per year. Because of the higher salary, his
average income tax rate will increase to 31 %.
The Bradley School of Business
at the Mount Perry College began its MBA program 16 years ago. The Bradley
School is smaller and less well known than the Ritter College. Bradley offers
an accelerated, one – year program, with a tuition cost of$71,000to
be paid upon matriculation. Books and other supplies for the program are
expected to cost$3500. Ben thinks that he will receive an offer of$88,000per year upon the
graduation,with an$12,000signing bonus. The salary at this job will increase at 3.5 % per
year. His average tax rate at this level of income will be 29 %.
Both schools offer a health
insurance plan that will cost $3,000 per year, payable at the beginning of the year.
Ben also estimates that room and board expenses will cost $2,000 more per year
at both schools than his current expenses, payable at the beginning of each year.
The appropriate discount rate is 6.5 percent. Assume all salaries are paid
at the end of each year.

Answer the following questions. Please provide original work with proper
citation.

1. How does Ben’s age affect his decision to get an MBA?
2. What other, perhaps non-quantifiable factors affect Ben’s
decision to get an MBA?
3.
In
choosing between two schools, Ben believes that the appropriate analysis is to
calculate the future value of each option. How would you evaluate this
statement?
4.
Suppose,
instead of being able to pay cash for his MBA, Ben must borrow the money. The
current borrowing rate is 5.4
percent. How would this affect his decision to get MBA?