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The Mba Decision

Decent Essays

Mini Case - The MBA Decision 1. How does Ben’s age affect his decision to get an MBA? Ben’s age is a very important factor which can affect his decision to get an MBA degree. Firstly, Ben is now 28 years old and expects to work for 40 more years. So he has an expected work life of 68 years. So the earlier he gets an MBA, the better for him. For example: probably it won’t benefit him much if he decided to get an MBA at the age of 60. No one would hire him as an investment banker even if he had an MBA that time. Secondly, getting an MBA degree will cost Ben a lot of money. Currently at the age of 28, he already has a job experience of around 6 years. This job allowed Ben to have a savings account with enough money to cover the …show more content…

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? In this case Ben has to consider the cash out flows he has to face to repay the loan (principle + interest). Assuming Ben takes a 5 year loan, with the borrowing rate of 5.4% and discount rate of 6.5%, the loan turns out to be a slightly better funding option for his MBA (with increased NPVs). Considering Ben borrows the money, the NPV values of the three options are as follows: i. Not getting an MBA: NPV = $935,283 (no change from previous) ii. Getting MBA from Wilton University: NPV = $1,471,596 iii. Getting MBA from Mount Perry College: NPV = $1,303,654 Hence it can be seen that still the best option for Ben would be to get an MBA from Wilton University as it has the highest NPV value. However his decision on whether to borrow the money or not might get affected. (Detail calculation for Question #6 is given later in the ‘calculation’ section) Calculation Question # 3 i) Not getting an MBA * Cash Inflow: * Salary = $60,000 x (1 – 26%) = $44,400 [after 26% tax deduction] Expected to increase at 3% per year Appropriate discount rate = 6.5% Working years left = 40 Formula for Growing Annuity is as follows: PV = C 1-1+g1+rTr-g Here, C = $44,400, g = 3%, r = 6.5, T = 40 Hence, PV of Cash Inflow = $44,400 1-1+3%1+6.5%406.5%-3% = $935,283 * Cash

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