Professional Documents
Culture Documents
Background
Ben Bates
College
Graduate
Finance
Major
28 years
old-works
at Dewey
& Louis
Expecting
to work 35
more
years
MBA or no MBA?
No MBA
MBA
Wilton University
Expected yearly
increase: 3%
Mount Perry
Background (Cont.)
Wilton
Mount Perry
2 years
1 year
Tuition: $60,000+
$2,500+20,000
Tuition: $75,000+
$3,500+$20,000
Salary: $95,000+
$15,000
Salary: $78,000+
$10,000
Expected Yearly
Increase: 4%
Expected Yearly
Increase: 3.5%
Health Insurance:
$3,000/yr
Health Insurance:
$3,000/yr
40
28
63
50
NPV=636,223.41
(12 years D&L, 2 years Wilton, 21 years of work)
NPV=1,041,237.17 (2
(2 years Wilton, 33
years of work)
Location
Bens future work location is a
consideration, as well as where he
would like to settle down and spend
his time.
NPV=728,896.23
(No MBA, 35 years
D&L)
School Lifestyle
Ben must consider the resources
and culture of the school to see if it
fits with his current lifestyle and
needs.
3. Financial Analysis
Which is the best option from a strictly financial standpoint?
PV Growing Annuity (to calculate salary):
3. Financial Analysis
Which is the best option from a strictly financial standpoint?
NPV Calculations
Dewey and Louis
Base Salary
Wilton University
Mount Perry
50000
95000
78000
Tax Rate
0.26
0.31
0.29
Growth Rate
0.03
0.04
0.035
0.065
0.065
0.065
35
33
34
Signing Bonus
15000
10000
85500
101500
Discount Rate
Time working (years)
728896.23
1424719.72
1147257.88
PV Salary
728896.23
1256117.37
1077237.44
PV Signing Bonus
--
9125.17
6666.67
PV MBA Cost
--
155663.56
95305.16
--
68341.82
34741.78
1,041,237.17
953,857.16
NPV
728,896.23
3. Financial Analysis
Which is the best option from a strictly financial standpoint?
No MBA
$728,896.23
Wilton
Mount Perry
$1,041,237.17 $953,857.16
NPV Calculations
Salary
PV Salary
PV Signing Bonus
PV MBA Cost
PV Salary not earned
NPV
Both NPV and FV calculations will produce the same answer (relative); in both
cases, the second option yields the highest value to Ben.
FV Calculations
FV of 35 years at D&L
$2,051,013.73
$3,179,769.12
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5. Comparisons
What salary would Ben need to make him indifferent between attending Wilton and not getting an MBA?
The present value of a 2 year Wilton MBA, a signing bonus of $15,000, and 33 years
of work at the initial salary (S) must be equal to the NPV of 35 years at D&L, his
current company.
Used Excel solver to calculate the initial salary (S)
-155,663.56
58,373.79
875,434.62
PV of Signing Bonus
9,125.17
We assume that Ben will pay off his loan in the 10 years after he receives his
MBA, in yearly payments calculated with the formula. *Will be discussed in
next slide.
Mount Perry
155663.559
95305.164
0.054
0.054
10.000
10.000
20,552.595
12,583.346
10
Mount Perry
PV Salary @ Graduation
1322772.86
1083031.58
PV Salary Now
1166234.97
1016931.06
9125.17
6666.67
68341.82
34741.78
1,107,018.32
988,855.95
PV Signing Bonus
PV Salary not earned
NPV
728,896.23
Wilton University
Mount Perry
1,041,237.17
953,857.16
11
THANK YOU
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