Research Proposal on "MBA Decision Case"
Research Proposal 4 pages (1146 words) Sources: 0
[EXCERPT] . . . .
DecisionBen's age affects his decision to get his MBA because the amount of time remaining in the workforce will have an impact on the present value of his future earnings. As a younger worker, Ben will have 33 more years of earnings after his MBA. If Ben was older, he would have fewer years of higher earnings to offset the cost. It is important to remember that it is not the higher earnings, but the differential earnings that make a difference in the evaluation of the MBA decision. The longer the time frame for these differential earnings, the more they will be worth. Additionally, because the post-MBA jobs will see raises in excess of the raises Ben expects from his current job, the wage differential between MBA Ben and non-MBA Ben will grow larger with each passing year. As a result, the younger Ben is, the more he will benefit from getting an MBA.
There are several non-quantifiable factors that could affect Ben's decision to get an MBA. Intrinsic factors are often a substantial motivator for workers in knowledge-based positions. The MBA will give Ben a better position than the one in which he currently works. Additionally, the MBA will significantly improve Ben's prospects for promotion. This is relevant not just for the financial rewards, but for the overall job and life satisfaction that Ben will receive. Although he is happy in his current job for now, he may not be happy holding that position over the long-term, and the MBA gives him the opportunity to take on progressive positions that will consistently challenge him throughout his career.
Another non-quantifiable factor for Ben may be the opportunity to expand his network of contacts. The con
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3. From a purely financial standpoint, the value of each decision can be weighed strictly by a present value calculation. The future cash flows of each option are discounted back to the present value, using the discount rate. The total of the present values for all the years is summed as the net present value. The option with the highest net present value is the option that Ben should pursue, from a financial standpoint. Assuming all salaries are paid at the end of each year, the best option for Ben from a financial standpoint is to attend Wilson University. This option carries a net present value of $1.207 million, compared with $1.072 million at Mount Perry and $0.787 million at Ben's current job with Dewis & Louis.
4. Ben's view that the most appropriate analysis is the net present value calculation for each option. This view has some merit, but I would argue that it must be taken in context with a broader range of non-quantifiable factors. The decision to obtain an MBA is based as much on career prospects as it is earnings prospects. In terms of the earnings prospects, the net present value calculation is… READ MORE
Quoted Instructions for "MBA Decision Case" Assignment:
The MBA Decision Case
Ben Bates 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 this goal. After examining schools, he has narrowed his choice to either Wilson University or Mount Perry 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.
Ben currently works at the money management firm of Dewis and Louis. His annul salary at the firm is $50,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 35 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Ben has a savings account with enough money to cover the entire cost of his MBA program.
The Ritter College of Business at Wilson 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 $60,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $2,500 per year. Ben expects that after graduation from Wilson, he will receive a job offer for about $95,000 per year, with a $15,000 signing bonus. The salary at this job will increase at 4 percent each year. Because if the higher salary, his average income tax rate will increase to 31 percent.
The Bradley School of Business at 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 $75,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $3,500. Ben thinks that he will receive an offer of $78,000 per year upon graduation, with a $10,000 sighing bonus. The salary at this job will increase at 3.5 percent per year. His average tax rate at this level of income will be 29 percent.
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 $20,000 per year at either school. The appropriate discount rate is 6.5 percent.
Questions
1. How does Ben*****s age affect his decision to get an MBA?
2. What other, perhaps nonquantifiable factors affect Ben*****s decision to get an MBA?
3. Assuming all salaries are paid at the end of each year, what is the best option for Ben from a strictly financial standpoint?
4. Ben believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement?
5. What initial salary would Ben need to receive to make him indifferent between attending Wilson University and staying in his current position?
6. 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?
Year Dewis and Louis PV Wilson University PV Mount Perry College PV Discount Rate 6.5%
0 37,000 37,000 (85,500) (85,500) (101,500) (101,500)
1 38,110 35,784 (85,500) (80,282) 62,480 58,667 Wilson Starting Salary 95,000
2 39,253 34,608 75,900 66,918 57,318 50,535
3 40,431 33,471 68,172 56,436 59,324 49,112 Mount Perry Starting Salary 78,000
4 41,644 32,371 70,899 55,111 61,401 47,728
5 42,893 31,307 73,735 53,818 63,550 46,384 Borrowing Rate 5.4%
6 44,180 30,278 76,684 52,554 65,774 45,077
7 45,505 29,283 79,752 51,321 68,076 43,807
8 46,870 28,321 82,942 50,116 70,459 42,573
9 48,277 27,390 86,259 48,940 72,925 41,374
10 49,725 26,490 89,710 47,791 75,477 40,209
11 51,217 25,619 93,298 46,669 78,119 39,076
12 52,753 24,777 97,030 45,573 80,853 37,975
13 54,336 23,963 100,911 44,504 83,683 36,906
14 55,966 23,175 104,948 43,459 86,612 35,866
15 57,645 22,414 109,146 42,439 89,643 34,856
16 59,374 21,677 113,511 41,442 92,781 33,874
17 61,155 20,965 118,052 40,470 96,028 32,920
18 62,990 20,276 122,774 39,520 99,389 31,992
19 64,880 19,609 127,685 38,592 102,868 31,091
20 66,826 18,965 132,792 37,686 106,468 30,215
21 68,831 18,342 138,104 36,801 110,195 29,364
22 70,896 17,739 143,628 35,938 114,051 28,537
23 73,023 17,156 149,373 35,094 118,043 27,733
24 75,213 16,592 155,348 34,270 122,175 26,952
25 77,470 16,047 161,562 33,466 126,451 26,193
26 79,794 15,520 168,025 32,680 130,877 25,455
27 82,188 15,010 174,746 31,913 135,457 24,738
28 84,653 14,516 181,735 31,164 140,198 24,041
29 87,193 14,039 189,005 30,432 145,105 23,364
30 89,809 13,578 196,565 29,718 150,184 22,706
31 92,503 13,132 204,428 29,020 155,440 22,066
32 95,278 12,700 212,605 28,339 160,881 21,445
33 98,136 12,283 221,109 27,674 166,511 20,840
34 101,080 11,879 229,953 27,024 172,339 20,253
35 104,113 11,489 239,151 26,390 178,371 19,683
Present Value 787,763 1,207,498 1,072,107
How to Reference "MBA Decision Case" Research Proposal in a Bibliography
“MBA Decision Case.” A1-TermPaper.com, 2009, https://www.a1-termpaper.com/topics/essay/decision-ben-age-affects/4545197. Accessed 6 Jul 2024.
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