The Mba Decision

Fundamentals of Corporate Finance

Mini Case: The MBA Decision

1. Raj’s age affects his decision to get an MBA in two ways. The cost of obtaining an MBA is very high especially given that during the year(s) of study, there is no source of income. If Raj were to go to school for his MBA directly after graduating from school, he may not have enough savings to pay for the cost of his MBA and would have to get a loan, which would charge him interest until fully paid back. Also, being that he is already 28 years old and wants to retire at the age of 66, that only gives him 38 years of potential income at the given “MBA” salaries. On the other hand, if Raj obtained his MBA sooner, he would have more years of that potential income.

2. The other non-quantifiable factors that could affect Raj’s decision to get an MBA are so vast. Raj may have not had enough experience in the field to feel confident he could excel in the MBA program in previous years. Raj could have had other important things going on in his life that he would not have the appropriate time to commit to working on his MBA. Raj also may have not been able to afford to move away and pay for the program 6 years ago when he graduated from university.

3. Raj has three options, we will find the PV of all future salaries and costs at today’s date utilizing a 6.5% discount rate and the appropriate growth and tax rates to compare the three options.

(all work show on attached page)

a) Staying with current job:

PV of future salaries utilizing a 6.5% discount rate, a 3% growth rate and a 26% tax rate

= $836,222.10

b) Attending Assiniboine University:

PV of total cost of attending school utilizing a 6.5% discount rate

= $166,363.38

PV of future salaries utilizing a 6.5% discount rate, a 4% growth rate and a 31% tax rate

= $1,379,818.31

Total PV of future salaries minus total cost

= $1,379,818.31 - $166,363.38

= $1,213,454.93

c) Attending University of Passy:

PV of total cost of attending school...