• May 7th, 2015

MBA Choices in Finance

Paper, Order, or Assignment Requirements

 

 

Assignment #1 – MBA Choices in Finance
For at least one Reference use text
Berk, J. B., & DeMarzo, P. M. (2014). Corporate finance : the core. Third edition.

David Jetter graduated from college six 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 degree would allow him to achieve his goal. After examining schools, he has narrowed his
choice to either Prentice University or Mount Alliance College. Although internships are
encouraged by both schools, to get class credit for the internship, no salary can be paid. Other
than internships, neither school will allow its students to work while enrolled in its MBA program.
David currently works at the money management firm of Dewey and Louis. His annual salary at
the firm is $50,000 per year, and his salary 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 %. David has savings account
with enough money to cover the entire cost of his MBA program.
The Ritt College of Business at Prentice 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, payable at the beginning of each school year. Books and other supplies are estimated to
cost $3000 per year. David expects that after graduation from Prentice, he will receive a job offer
for about $110,000 per year, with a $20,000 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 Bradel School of Business at Mount Alliance College began its MBA program 16 years ago.
The Bradel School is smaller and less well known than the Ritt College. Bradel offers an
accelerated, one – year program, with a tuition cost of $80,000 to be paid upon matriculation.
Books and other supplies for the program are expected to cost $4,500. David thinks that he will
receive an offer of $92,000 per year upon the graduation, with an $18,000 signing bonus. The
salary at this job will increase at 3.5 % per year. His average tax rate at this level of income will be
29 %.
Both schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning
of the year. David also estimates that room and board expenses will cost $2,000 more per year at
both schools than his current expenses, payable at the beginning of each year. The appropriate
discount rate is 6.5 percent.

1. How does David’s age affect his decision to get an MBA? Explain why?

2. What other, perhaps non- quantifiable factors affect David’s decision to get an MBA? 
Explain in detail.

3. Assuming all salaries are paid at the end of each year, what is the best option for David – from
a strictly financial standpoint? 
Explain why in detail with calculations.

4. David believes that the appropriate analysis is to calculate the future value of each option.
How would you evaluate this statement? So what is the future value of each option?

5. What initial salary would David need to receive to make him indifferent between attending
Prentice University and staying in his current position?

Explain in detail with calculations.

Students will be graded on their ability to cite examples from the text or websites (except
Wikipedia). Students are to follow the guidelines for two page papers (which means all papers
will have three sections: Introduction, Analysis and Conclusion). Place the answers to the
questions in the analysis (you can number them which would help the instructor grade it) and
make certain you have all the details for the calculations so the instructor can follow your
thoughts. All papers are to use APA standards and have at least three citations.

 

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