Course: Engineering Economics

The MBA Decision Case Study

Read the following case study and answer the questions:

Ben Bates graduated from college six years ago with a finance undergraduate degree. Since graduation, he has been employed in the finance department at East Coast Yachts. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither schools will allow its students to work while enrolled in its MBA program.

Bens annual salary at East Coast Yachts is $50,000 per year, and his salary is expected to increase at 3% per year until retirement. He is currently 28 years old and expects to work for 40 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26%. Ben has a savings account with enough money to cover the entire cost of his MBA program.

The Ritter College of Business at Wilton University is one of the top MBA programs in the country. The MBA degree requires two years of full-time enrollment at the university. The annual tuition is $65,000. Books and other supplies are estimated to cost $2,500 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $90,000 per year, with a $15,000 signing bonus. The salary at this job will increase at 4% per year. Because of the higher salary, his average income tax rate will increase to 31%.

The Bradley School of Business at Mount Perry College began its MBA program 16 years ago. The Bradley School is smaller and less well known than the Ritter College. Bradley offers an accelerated, one-year program, with a tuition cost of $75,000. Books and other supplies for the program are expected to cost $3,500. Ben thinks that after graduation from Mount Perry, he will receive an offer of $78,000 per year, with a $12,000 signing bonus. The salary at this job will increase at 3.5% per year. His average income tax rate at this level of income will be 29%.

Both schools offer a health insurance plan that will cost $3,000 per year. Ben also estimates that room and board expenses will cost $2,000 at either school. The appropriate annual interest rate is 6.5%.

Use Present Worth Method to Analyze the below Alternatives and pick the most economical solution:

1. Continue working at East Coast Yachts with a salary of $50,000 per year, and his salary is expected to increase at 3% per year until retirement. His current job includes a fully paid health insurance plan, and his current average tax rate is 26%.

2. Pursue an MBA degree at Ritter College of Business at Wilton University which requires two years of full-time enrollment at the university. The annual tuition is $65,000. Books and other supplies are estimated to cost $2,500 per year. Also, offers a health insurance plan that will cost $3,000 per year. Ben also estimates that room and board expenses will cost $2,000 with an appropriate annual interest rate is 6.5%. Ben expects that after graduation from Wilton, he will receive a job offer for about $90,000 per year, with a $15,000 signing bonus. The salary at this job will increase at 4% per year. Because of the higher salary, his average income tax rate will increase to 31%.

3. Pursue an MBA degree at Bradley School of Business at Mount Perry College but its smaller and less well known than the Ritter College. Bradley offers an accelerated, one-year program, with a tuition cost of $75,000. Books and other supplies for the program are expected to cost $3,500. Also, offers a health insurance plan that will cost $3,000 per year. Ben also estimates that room and board expenses will cost $2,000 with an appropriate annual interest rate is 6.5%. Ben thinks that after graduation from Mount Perry, he will receive an offer of $78,000 per year, with a $12,000 signing bonus. The salary at this job will increase at 3.5% per year. His average income tax rate at this level of income will be 29%.