How does David’s age affect his decision to get an MBA? Explain why? 2. What other, perhaps non- quantifiable factors affect David’s decision to get an MBA? Explain in detail.
Answer the questions and follow the guidance
David letter graduated from college six years ago with a finance undergraduate degree. 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 examining schools, he has narrowed his choice to either Prentice University or Mount Alliance College. Although internships are encouraged by
both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program. David
currently works at the money management firm of Dewey and Louis. His annual salary at the firm is $50,000 per 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 %. David has savings account with
enough money to cover the entire cost of his MBA program. The Ritt College of Business at Prentice 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 $65,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $3000 per year. David expects
that after graduation from Prentice, he will receive a job offer for about $110,000 per year, with a $20,000 signing 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 Bradel School of Business at Mount Alliance College began its MBA program 16 years ago. The Bradel School is smaller and less
well known than the Ritt College. Bradel offers an accelerated, one — year program, with a tuition cost of $80,000 to be paid upon matriculation. Books and other supplies for the program are
expected to cost $4,500. David thinks that he will receive an offer of $92,000 per year upon the graduation, with an $18,000 signing 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. David 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
1. How does David’s age affect his decision to get an MBA? Explain why? 2. What other, perhaps non- quantifiable factors affect David’s decision to get an MBA? Explain in detail.
3. Assuming all salaries are paid at the end of each year, what is the best option for David — from a strictly financial standpoint? Explain why in detail with calculations. 4. David believes that
the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement? So what is the future value of each option? 5. What initial salary would David need
to receive to make him indifferent between attending Prentice University and staying in his current position? Explain in detail with calculations.