Q.

1)

How does Ben's age affect his decision to get an MBA?

Criterion

Dewey & Lewis

Tution fees
Books and supplies
Health insurance
Room & board expenses
Expected salary
Growth rate(Salary)
Bonus
Average tax rate
Discount rate

65000
3%
26%
6.5%

Ritter college(1
yr)
70000
3000
3000
2000
110000
4%
20000
31%
6.5%

Based on the information above we can find a timing that going to a B-school is
Considering he will retire at 68 and after T years it will be worse for him to get a
begining of T+1 years so that we can get T.
Considering different casesCase1:

If he continues with the current job

NPV=

0.74*{65000*1.03^T/0.065-0.03*[1-(1+0.03/1+0.0

Case2:

If he starts with MBA at Riter college after T years

NPV=

0.69*(((110000/(0.065-0.04))*(1-((1+0.04)/(1+0

Case3:

If he starts MBA at Bradley school after T years

NPV=

0.71*{92000/0.065-0.035*[1-(1+0.035/1+0.065)^3

T
9
10
11
12
13

NPV1
1156734.0656
1169162.1897
1180515.3542
1190667.203
1199481.4726

NPV2
1208708.6902
1176398.6547
1143311.9357
1109429.8628
1074733.317

Based on the table above when T=10, at the beginning of year 11 the NPV1 will
be higer than NPV2. We can draw a conclusion that after 10yrs which means afte
after 13 yrs which means after 41 years old, going to ritter college wont get a hi
possible.

BA?
Mount perry
college(1 yr)
85000
4500
3000
2000
92000
3.50%
18000
29%
6.5%

ng that going to a B-school is not a good deal because the NPV of future cash flows would be lower than the cur
will be worse for him to get an MBA compared with continuing his current job. Comparing the NPV of 3 years at

he current job

0.065-0.03*[1-(1+0.03/1+0.065)^(40-T)]}

at Riter college after T years

065-0.04))*(1-((1+0.04)/(1+0.065))^38-T))/(1+0.065)^2)+20000/(1+0.065)^2-73000/(1+0.065)-73000

adley school after T years

035*[1-(1+0.035/1+0.065)^39-T]/(1+0.065)^2}+18000/(1+0.065)-89500
NPV3
1104289.7402
1079143.1862
1053267.7466
1026642.2942
999245.08965

ning of year 11 the NPV1 will be higher than NPV3 when T=13, at the beginning of year 14, the NPV1 will
after 10yrs which means after 38yrs old, going to the bradley school wont be get a higher payoff, and
to ritter college wont get a higher payoff, and before 38yrs old, it is better to pursue MBA aas earlier as

ows would be lower than the current job.

Comparing the NPV of 3 years at the

2-73000/(1+0.065)-73000

g of year 14, the NPV1 will

get a higher payoff, and
ursue MBA aas earlier as

Current Position
Age
28
Work Life
40

Position
Salary
Current Position 65,000

Signing Bonus
Salary hike
0
3%

Witon- Ritter
College

20,000

4%

18,000

3.50%

110,000

Bradley School 92,000

Answer 4:
From the FV value calculation it is
evident that the best option for him to
choose is Wilton-Ritter

ANSWER 5:
Annuity
factor
forBen
present
position
Salary (after
tax)
needs
to receive now to be
indifferent to attending Wilson

The MBA Decision

26%

Health
Insurance
included?
yes

Money in Hand
Course
(minus tax)
Duration
48,100
NA

NA

31%

yes

75,900

140,000

29%

yes

65,320

85,000

Tax Rate

Tution Fees

Assuming salary paid at end of each period and tax paid on bonus

Position
Salary
Current Position 1013224
Witon- Ritter Scho1804928
Bradley School

present value of
preset value of present value salary Including
salary
of bonus
Bonus
1013224
1,013,224
1591331
11,424
1,602,756

1462896
1,373,612
11,268
1,384,879
Assuming salary paid at end of each period and NO tax paid on bon

Current Position 1013224

Witon- Ritter Scho1804928

1013224
1591331

17633

1608964

Bradley School

1,373,612

16901

1,390,513

1462896

19.7
Calculated using annuity growth formula
73,996.19

Education Expenses
Books &
Discount
Supp.
Health Insur.
Board & Lodge
Rate
NA
NA
NA
6.50%

Total
Expences

Present Value Education

expense

6,000

6,000

4,000

6.50%

156,000

151,239

4,500

3,000

2,000

6.50%

94,500

94,500

od and tax paid on bonus

Less Edu Net Present

Exp.
Value
0
1,013,224
151,239 1,451,516

94,500
1,290,379
d and NO tax paid on bonus

future value
12580261.9221
18022132.434
16021445.65072

151,239

1,013,223.78
12,580,261.92
###
###

94,500

1,296,013

16091395.3664

Remaining
Work Life

38
39

Question 6
The MBA Decision
Current Position
Age
28
Work Life
40

Position

Salary

Signing
Bonus

Current
Position

65,000

Ritter
College

110,000

20,000

Bradley
School

92,000

18,000

Hike

Tax Rate

Health
Course
Insurance Money in Hand Duration Tution Fees

3%

26% yes

48,100

4%

31% yes

75,900 2

140,000

3.50%

29% yes

65,320 1

85,000

Current Position
Ritter School
Bradley School

NA

present
value of
present
salary
value of
Including
PV of salary
bonus
Bonus
1013224
1,013,224
1804928 1591331.2473 11424.317 1,602,756
1462896 1373611.7012 11267.606 1,384,879

Education Expense
Books &
Supp.

Health
Insur.

Board &
Lodge

NA

Discount Rate

Total

Present
Value

Remaining
Work Life

6.50%
6,000

6,000

4,000

6.50%

156,000

151,239

38

4,500

3,000

2,000

6.50%

94,500

94,500

39

total
interest
paid on
loan
12,863
5,103

net
present
Net Present
value
Value
Less Edu
after
Exp.
interest
0 1013223.7760013 1,013,224
148,880
151,239
1,451,516 1,302,636
93,524
94,500
1,290,379 1,196,855

present
value of
education
loan

interest
rate

5.4%
5.4%