Group PARTICIPATION: Phạm Ngọc Phương Anh Lê Ngọc Châu 100% Tào Quốc Cường 100% Bùi Thị Thùy Dung 100% Nguyễn Hữu Dũng 100% MINICASE CHAPTER Ben’s age is one of the important factor that affects his decision to get an MBA Ben is now 28 years old He graduated from college six years ago when he’s age is 22 years old Assuming that Ben already working for about years since graduated from college, so that he would have enough money from salary saving in years to his MBA at 28 years age If he starts the MBA program on 28 years old, he will spend years for study and perhaps finish his MBA at 30 years old At 30 years old, he will start working again for 40 more years after getting the MBA If Ben was younger, he would have more time to increase his salary and compensate the cost of decision to get an MBA The cost will include tuition, books and other supplies, and the lost salary if he decided to get an MBA (Opportunity cost) There are several non quantifiable factors affect Ben’s decision to get an MBA First, I think when assuming that Ben already working for about years since graduated from college He has job experiences as the MBA program usually put the requirement to the candidates at least having two years experiences in his respective field Second, I think the current family situation If he married or had children, this will affect Ben’s decision because family supporting is also important The third is his willingness to study If he motivated to continue the study, he will continue the study But if he has no willingness to study, he could anything else, for example having jobs that would pay more or open the business So, There might be nonquantifible factors affect Ben’s decision to get an MBA: He gets married: he won’t have much time and a large amount of his salary must be used for taking care of his family His desire: does he really want to get an MBA? does he have enough patience and willingness throughout the program? Job satisfaction: he is satisfied with his current job, so he might question himself why does he have to sacrifice his current job to get an MBA? The importance of his goal: will it create a big impact on his career if he gets an MBA? Option 1: Keeping his current work for 40 years Salary = $65,000 tax rate = 26% $65000 C = (1 − 0.26) =$48100 discount rate = 6.5% growth rate = 3% the number of period working= 40 1+ g t + 3% 40 1 − 1 − 1+ r + 6.5% C 48100 r−g % − % = =$1013223.776 PV = Option 2: Getting the MBA at Wilton University A PV of salary for 38 years (40 – years) Salary = $110,000 tax rate = 31% C = $75,900 r = 6,5% g = 4% t = 38 1+ g t + 4% 38 1 − 1 − 1+ r + 6.5% C 75900 r−g 6.5% − 4% = =$1804927.684 PV = B.PV of signing bonus Signing bonus = $ 20,000 r = 6,5% t = 38 FV 20000 x(1 − 31%) t PV = (1 + r ) = (1 + 6.5%) =$12166.89 C PV of cost for years ((tuition, books and supplies, health insurance and rent fee) C = $70000 + $3000 + $3000 = $76000 r = 6, 5% t=2 1 − t ( 1+ r) C r PV = = 1 − (1 + 6.5) 76000 6.5% = $138367.61 D PV of years salary when he would work at the money management firm Salary = $65,000 tax rate = 26% $65000 C = (1 − 0.26) =$48100 r = 6.5% g = 3% t =2 1+ g t + 3% − 1 − + r 48100 + 6.5% C r−g 6.5% − 3% =$88844.37 PV = = Option 3: Getting the MBA at Mount Perry College A PV of salary for 39 years (40 – years) Salary = $ 92,000 tax rate = 29% C = $ 65320 r = 6,5% g = 3,5% t = 39 1+ g t + 3.5% 39 − 1 − + r 65320 + 6.5% C r−g 6.5% − 3.5% =$1462896.46 PV = = B PV of signing bonus Signing bonus = $ 18,000 r = 6,5% t = 39 FV 18000(1 − 29%) t PV = (1 + r ) = (1 + 3.5%) =$12347.83 C PV of cost for years ((tuition, books and supplies, health insurance ) C = $85000+$4500+$3000= $92500 r = 6,5% t=1 1 − t ( 1+ r) C r PV = 1 − $92500 (1 + 6.5%) % = = $86854.46 D PV of year salary when he would work at the money management firm Salary = $65,000 tax rate = 26% $65000 C = (1 − 0.26) =$48100 r = 6.5% g = 3% t =1 1+ g t + 3% 1 − 1 − + r 48100 + 6.5% C r−g 6.5% − 3% PV = = =$45164.32 So the best option for Ben Bates is getting the MBA at Wilton University He will receive more money after finishing the study and get salary and signing bonus with total present value $1,806,754.711 The present value study expenses at Wilton University (tuition, books and supplies, health insurance and rent fee) is $142,008.86 and the present value study expenses at Mount Perry College (tuition, books and supplies, health insurance and rent fee) is $86,854.46 Since Ben has savings account with enough money to cover the entire cost of his MBA program Option 1: Keeping his current work for 40 years Salary = $65,000 $65000 C = (1 − 0.26) =$48100 g = 3% t = 40 FV = PV x (1+r)t = $1013223.776 x (1+6.5%)40 = $12580261.92 Option 2: Getting the MBA at Wilton University A PV of salary for 38 years (40 – years) Salary = $110,000 tax rate = 31% C = $75,900 g = 4% t = 38 FV = PV x (1+r)t =$1804927.684x (1+6.5%)38 = $19758087.37 B.PV of signing bonus Signing bonus = $ 20,000 r = 6,5% t = 38 FV = PV x (1+r)t=$12116.89x (1+6.5%)2=$13743.27 C PV of cost for years ((tuition, books and supplies, health insurance ) C = $70000 + $3000 + $3000 = $76000 r = 6, 5% t=2 FV = PV x (1+r)t=$138367.61x (1+6.5%)2= $156940 D PV of years salary when he would work at the money management firm Salary = $65,000 tax rate = 26% $65000 C = (1 − 0.26) =$48100 r = 6.5% t =2 FV = PV x (1+r)t=$88844.37(1+6.5%)2=$100769.51 Option 3: Getting the MBA at Mount Perry College A PV of salary for 39 years (40 – years) Salary = $ 92,000 tax rate = 29% C = $ 65320 r = 6,5% t = 39 FV = PV x (1+r)t=$1462896.46(1+6.5%)39 = $17054865.24 B PV of signing bonus Signing bonus = $ 18,000 r = 6,5% t = 39 FV = PV x (1+r)t=$12347.83(1+6.5%)=$13150.44 C PV of cost for years ((tuition, books and supplies, health insurance ) C = $85000+$4500+$3000 = $92500 r = 6,5% t=1 FV = PV x (1+r)t=$86854.46x(1+6.5%)= $92500 D PV of year salary when he would work at the money management firm Salary = $65,000 tax rate = 26% $65000 C = (1 − 0.26) =$48100 r = 6.5% t =1 FV = PV x (1+r)t=$45164.32(1+6.5%)=$48100 By calculate the future value of each option: The present value of his salary $1,013,223.776 is equal to future value $12,580261.92 when keeping his current work for 40 years The present value of salary $1,804,927.684 is equal to future value $19,758,087.37 plus $ 20,000 signing bonus when having a job for 38 years after getting the MBA at Wilton University The present value of salary $1,463,821.2 is equal to future value $17,054,865.24 plus $18,000 signing bonus when having a job for 39 years after getting the MBA at Mount Perry College The best choice is he having study at Wilton University To find the initial salary Ben would need to receive to make him indifferent between attending Wilton University and continuing his current job, we need to find the present value of his current job, but now plus the Total costs, Opportunity cost (lost salary) at Wilton University and minus Signing bonus (if he didn’t study at Wilton University, he wouldn’t receive Signing bonus): Present value = $1013223.78 + $147361.50 + $88844.37 - $12166.89 = $1237262.76 1+ g t 1 − 1+ r C r−g Present value of Aftertax salary = + 4% 38 1 − + 6.5% C 6.5% − 4% $1237262.76= C = $52028.82 The aftertax salary needed is $52028.82 Pretax salary = $52028.82/(1 – 31%) = $75404 Whether Ben can pay cash or borrow the money, this wouldn’t affect his decision Because the decision to borrow money doesn’t depend on how Ben allocate the money ... x (1+r)t=$12 347 .83(1+6.5%)=$13150 .44 C PV of cost for years ((tuition, books and supplies, health insurance ) C = $85000+ $45 00+$3000 = $92500 r = 6,5% t=1 FV = PV x (1+r)t=$868 54. 46x(1+6.5%)=... College A PV of salary for 39 years (40 – years) Salary = $ 92,000 tax rate = 29% C = $ 65320 r = 6,5% t = 39 FV = PV x (1+r)t=$ 146 2896 .46 (1+6.5%)39 = $170 548 65. 24 B PV of signing bonus Signing bonus... = $75,900 r = 6,5% g = 4% t = 38 1+ g t + 4% 38 1 − 1 − 1+ r + 6.5% C 75900 r−g 6.5% − 4% = =$18 049 27.6 84 PV = B.PV of signing