Answer ALL Questions Question 1 Simon Johnson left university 6 years ago with a Bachelor's degree...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Answer ALL Questions Question 1 Simon Johnson left university 6 years ago with a Bachelor's degree in Finance. Although he is contented with his life, his ambition is to be an investment banker. He feels that getting an MBA would enable him to achieve his ambition. After assessing different universities, he has reduce his options to either University of Maryland or Emory University. Although internships are good because it can help the student to obtain class credit for the internship, no wages are paid. Other than internships, neither university allow its students to work while enrolled in the MBA programme. Simon currently is attached with the investment firm of Adam and Roberts. His wage per year is $106,000 annually, and his wage is expected to increase at 6% annually until retirement. His current age is 28 and expects to work for another 38 years. His current occupation includes an attractive health insurance scheme and his current average tax rate is 30%. Simon can afford to pay for the entire cost of his MBA programme. The Robert H.Smith School of Business at University of Maryland is one of the top MBA programmes in the country. It needs full-time enrolment and can be completed in 2 years. The tuition fee per year is $116,000, payable at the start of each school year. Books and stationeries are predicted to cost $4,000 annually. Simon expects that post- graduation, he can obtain a job offer for approximately $174,000 annually, with a $20,000 bonus offer. The wage of this job will increase at 8% annually. Due to the higher wage, his average income tax will increase to 40%. Goizueta Business School at Emory University began its MBA programme 32 years ago. Goizueta Business School is less renowned as compared to Robert H. Smith School of Business. Goizueta offers a fast-track 1-year programme costing $150,000 to be paid upon matriculation. Stationeries and books are expected to cost $8,400. Simon thinks that he will receive a wage offer of $156,000 annually post-graduation, with a $16,000 bonus reward. The wage at this job will increase at 7% annually. His average tax rate at this wage will be 35%. Health insurance plan are provided by both universities which will cost $6,000 annually, which needs to be paid at the start of the year. Simon also discovered that both universities provide accomodation. His accomodation expenditures will reduce by $8,000 annually at either university he goes to. The suitable interest rate is 11%. Required: (a) (b) Assuming wages will only be banked in at year end, evaluate the best option for Simon Johnson from the finance perspective. (13 marks) After choosing the best option, a close friend of Simon approaches him and seek his advice on shareholder value analysis (SVA). Critically explain to Simon what SVA is about and what influences this valuation method. (12 marks) [Total: 25 Marks] Answer ALL Questions Question 1 Simon Johnson left university 6 years ago with a Bachelor's degree in Finance. Although he is contented with his life, his ambition is to be an investment banker. He feels that getting an MBA would enable him to achieve his ambition. After assessing different universities, he has reduce his options to either University of Maryland or Emory University. Although internships are good because it can help the student to obtain class credit for the internship, no wages are paid. Other than internships, neither university allow its students to work while enrolled in the MBA programme. Simon currently is attached with the investment firm of Adam and Roberts. His wage per year is $106,000 annually, and his wage is expected to increase at 6% annually until retirement. His current age is 28 and expects to work for another 38 years. His current occupation includes an attractive health insurance scheme and his current average tax rate is 30%. Simon can afford to pay for the entire cost of his MBA programme. The Robert H.Smith School of Business at University of Maryland is one of the top MBA programmes in the country. It needs full-time enrolment and can be completed in 2 years. The tuition fee per year is $116,000, payable at the start of each school year. Books and stationeries are predicted to cost $4,000 annually. Simon expects that post- graduation, he can obtain a job offer for approximately $174,000 annually, with a $20,000 bonus offer. The wage of this job will increase at 8% annually. Due to the higher wage, his average income tax will increase to 40%. Goizueta Business School at Emory University began its MBA programme 32 years ago. Goizueta Business School is less renowned as compared to Robert H. Smith School of Business. Goizueta offers a fast-track 1-year programme costing $150,000 to be paid upon matriculation. Stationeries and books are expected to cost $8,400. Simon thinks that he will receive a wage offer of $156,000 annually post-graduation, with a $16,000 bonus reward. The wage at this job will increase at 7% annually. His average tax rate at this wage will be 35%. Health insurance plan are provided by both universities which will cost $6,000 annually, which needs to be paid at the start of the year. Simon also discovered that both universities provide accomodation. His accomodation expenditures will reduce by $8,000 annually at either university he goes to. The suitable interest rate is 11%. Required: (a) (b) Assuming wages will only be banked in at year end, evaluate the best option for Simon Johnson from the finance perspective. (13 marks) After choosing the best option, a close friend of Simon approaches him and seek his advice on shareholder value analysis (SVA). Critically explain to Simon what SVA is about and what influences this valuation method. (12 marks) [Total: 25 Marks]
Expert Answer:
Related Book For
Corporate Finance Core Principles and Applications
ISBN: 978-1259289903
5th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
Posted Date:
Students also viewed these finance questions
-
The required return for Williamson Heating's stock is 1 2 % , and the stock sells for $ 3 0 per share. The firm just paid a dividend of $ 1 . 0 0 , and the dividend is expected to grow by 3 0 % per...
-
Max Gruber graduated from university 6 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...
-
What type of business is S. G. Cowen? How is this firm different from the other financial firms? How systems and operations of financial firms are different from other types of businesses - say...
-
Given the following table of assets held at death, how much is the probate estate worth? Asset Value (millions) Notes Investments $7 Retirement Account $6 Named Beneficiary Residence $4 Joint Tenancy...
-
An airline serves lunch in the first- class cabin. Customers are given a choice of either a sandwich or chicken salad. There are 12 customers in first-class, and the airline loads seven of each meal...
-
The trial balance of Beautiful Tots Child Care does not balance. The following errors are detected: a. Cash is understated by $1,500. b. A $4,100 debit to Accounts Receivable was posted as a credit....
-
What is Indias current account balance? Use the following balance of payments data for India from the IMF to answer this problems. Assumptions (millions of US$) 2000 2001 2002 2003 2004 2005 2006...
-
Determine the value of a $1,000 Canadian Pacific Limited perpetual 4 percent debenture (bond) at the following required rates of return: a. 4 percent b. 5 percent c. 6 percent
-
22. A single tax applied to an entire base constitutes a graduated taxes. a. True b. False 23. The effective tax rate represents the taxpayers average rate of the taxation on each dollar of the total...
-
Distinguish between marketing research and market research. Why is it important to understand the difference? Discuss the difference between primary and secondary research.
-
How do mindfulness-based interventions, relaxation techniques, and biofeedback training enhance self-regulation and stress management skills, and what are the organizational implications of...
-
Use the following income statement and information about selected current assets and current liabilities to calculate the net cash provided or used by operating activities under the indirect method....
-
This question is based on the article given, "The use of digital technologies by small and medium enterprises during COVID-19: Implications for theory and practice" by Papadopoulos, Baltas and Balta...
-
Lower-of-Cost-or-Market Method On the basis of the following data, determine the value of the inventory at the lower-of-cost-or-market by applying lower-of-cost-or-market to each inventory item, as...
-
Using the information provided in the below case study, identify the areas of potential concern and what recommendations you must address. The scan results provided is from a server found in a...
-
In the operation of an automated production line with storage buffers, what does it mean if a buffer is nearly always empty or nearly always full?
-
Paddle Petroleum has the following account balances at 12/31/15: The above properties are abandoned in 2016. Record the abandonment entry. Lease A: unproved property Lease B: proved property... Wells...
-
Aaron Energy Corporation has the following account balances at 12/31/15: At 12/31/15, Lease A is considered to be 40% impaired. Aaron Energys estimated abandonment rate of insignificant unproved...
-
Dwight Oil and Gas Company has the following information at 12/31/15. Production in 2015: Capitalized costs, plus future development costs..... Accumulated DD&A.. Proved reserves Oil. Gas. $2,000,000...
Study smarter with the SolutionInn App