Bryan D. Hill
The MBA Decision
This assignment will help the student to incorporate real-life decision-making skills gained from formal finance instruction. The practicality of obtaining an advanced degree for a youthful, ambitious finance graduate is examined for short and long-term efficacy. A successful demonstration will consist of weighing quantifiable versus nonquantifiable factors to determine which decision is most valuable to the subject.
Ben Bates must first decide whether the decision to get an MBA is profitable to him (Ross, Westerfield, & Jaffe, 2013). If the decision is to proceed then he must decide which university to attend (Ross et al., 2013). By compounding the expected salary after graduation from each university and deducting the expense associated with obtaining the degree, a more informed decision may be made regarding Ben’s choice (Ross et al., 2013). However, there are limitations using strictly a financial standpoint (Ross et al., 2013).
Present Value of Educational Options Because of the uncertainty of valuation of future value (FV) (Ross et al., 2013), decision-making processes must begin with an understanding of the present value (PV) of each position (see Figure 1). The PV of growing annuity is calculated for the current job utilizing an annual salary of $65,000, an annual increase in salary of 3%, a tax rate of 26%, and a discount rate of 6.5%. The PV for Wilton University or Mount Perry College is adjusted for perspective salary and salary increases, costs of education, signing bonuses, employment length in years, and time missed from current position (see Appendix A).
Present Value (PV) of Current Decision
Dewey and Lewis Annual Salary $65,000 Annual Increase 3% Tax Rate 26% Employment length 40 Discount Rate 6.5% _________ PV $ 937,474
Wilton University Education Costs $146,000 Annual Salary $110,000 Bonus $20,000 Annual Increase 4% Tax rate 31% Employment length 38 Discount Rate 6.5% _________ PV $1,806,116
Mount Perry College Education Costs $89,500 Annual Salary $92,000 Bonus $18,000 Annual Increase 3.5% Tax Rate 29% Employment Length 39 Discount Rate 6.5%