Assignment 1: The MBA Decision
1. How does Ben’s age affect his decision to get an MBA? Ben must evaluate the cost of completing a MBA program against the higher earning potential after graduating. Therefore Ben’s age is one of the critical factors in his decision because his age determines how much longer he can work. If he would wait his MBA at age 40, he would have less time to recoup his cost by working at an increased salary resulting from graduating his MBA program.
2. What other, perhaps non-quantifiable factors, affect Ben’s decision to get an MBA? Asides from a purely financial standpoint, there are several other factors that may affect Ben’s decision to get an MBA. The value he attaches to education, completing a higher
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Assuming Ben is planning on retiring at the same age as if he would have stayed at East Coast Yachts, Ben would need to work for 38 more years. Ben’s effective salary is $62,100, and the present value in two years of his lifetime salary would be $1,476,759.01. This salary is discounted back by two years to the present time and equals $1,301,998.29. The signing bonus of $15,000 would have also an effective tax rate of 31%, and Ben would receive $10,350. The present value of the signing bonus that Ben would receive when accepting his job after graduating from Wilton University is $9,125.17. The present value of Ben’s earning is $1,301,998.29 plus $9,125.17, and equals $1,311,123.46. The cost of attending Wilton University and lost opportunity costs are also relevant. The annual cost of attending Wilton University are $65,000 in tuition, $2,500 for books and supplies, health insurance $3,000, and additional room and board expenses of $2,000, and total $72,500 annually. These costs are due at the beginning of each year and the $72,500, and the present value of the second year costs is $68,075,12. Ben’s missed opportunity of earning 2 years of salary at East Yacht is also a relevant factor in financial decision-making