THE MBA DECISION Ben Bates graduated from college six years agowith a finance undergraduate degree. Since graduation, he has beenemployed in the finance department at East Coast Yachts. Althoughhe is satisfied with his current job, his goal is to become aninvestment banker. He feels that an MBA degree would allow him toachieve this goal. After examining schools, he has narrowed hischoice to either Wilton University or Mount Perry College. Althoughinternships are encouraged by both schools, to get class credit forthe internship, no salary can be paid. Other than internships,neither school will allow its students to work while enrolled inits MBA program. Ben’s annual salary at East Coast Yachts is$61,000 per year, and his salary is expected to increase at 3percent per year until retirement. He is currently 28 years old andexpects to work for 40 more years. His current job includes a fullypaid health insurance plan, and his current average tax rate is 25percent. Ben has a savings account with enough money to cover theentire cost of his MBA program. The Ritter College of Business atWilton University is one of the top MBA programs in the country.The MBA degree requires two years of full-time enrollment at theuniversity. The annual tuition is $65,000, payable at the beginningof each school year. Books and other supplies are estimated to cost$2,800 per year. Ben expects that after graduation from Wilton, hewill receive a job offer for about $107,000 per year, with an$20,000 signing bonus. The salary at this job will increase at 4percent per year. Because of the higher salary, his average incometax rate will increase to 30 percent. The Bradley School ofBusiness at Mount Perry College began its MBA program 16 years ago.The Bradley School is smaller and less well known than the RitterCollege. Bradley offers an accelerated, one-year program, with atuition cost of $78,000 to be paid upon matriculation. Books andother supplies for the program are expected to cost $4,000. Benthinks that after graduation from Mount Perry, he will receive anoffer of $90,000 per year, with a $17,000 signing bonus. The salaryat this job will increase at 3.5 percent per year. His averageincome tax rate at this level of income will be 28 percent. Bothschools offer a health insurance plan that will cost $3,500 peryear, payable at the beginning of the year. Ben also estimates thatroom and board expenses will cost $2,500 more per year at bothschools than his current expenses, payable at the beginning of eachyear. The appropriate discount rate is 6.2 percent. Assume allsalaries are paid at the end of each year. Assuming all salariesare paid at the end of each year, what is the best option forBen—from a strictly financial standpoint? He has three choices:remain at his current job, pursue a Wilton MBA, or pursue a Mt.Perry MBA. In order to determine the best option, you will need tocalculate the after tax value of each option (perform analysisbelow).

Timeline for growing annuity for 40 years Salary Wilton MBAMount Perry MBA

Timeline Timeline Timeline

Year Value Year Value Year Value