SAUDI COMMUNITY INSTITUTE
FINANCIAL MANAGEMENT BBA LEVEL – II
ASSIGNMENT SOLVE THE DISCUSSION QUESTIONS OF CASE STUDY
SUBMITTED TO MISS. MADIHA ASIF
SUMBITTED BY GROUP# 4 AMBREEN MALIK AFRAN SULTAN MISBAH REHMAN MODINA MONIR TEHMINA MOH. NASIR
DATE OF SUBMISSION 7TH JULY, 2010
ACKNOWLEDGEMENT
We the students of SCI BBA level 2 Group #4 , namely Ambreen Malik, Afran Sultan, Misbah Rehman, Modina Monir and Tehmina Mohammad Nasir have completed this finance assignment. For the completion of it we extend our sincere gratitude to our subject teacher Miss Madiha for her constant support and help.
CASE STUDY MBA DECISION Ben Bates 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 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 internships, no salary can be paid, other than internships, neither school will allow its students to work while enroll in its MBA program. Ben currently works at the money management firm of Dewy and Louis. His annual salary at the firm 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 35 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26%. Ben has a saving account with enough money to cover his entire cost for the MBA program. Rifter college of Business at Wilton University is one of the top MBA program in the country. The MBA degree requires full time enrollment at the university the annual tuition is 60,000 payable at the beginning of each school year. Books and other supplies are estimated to cost 2500 per year. Ben expects that after graduation from Wilton, he will receive a job offer for a job offer for about 95000 per year, with a 15000 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 then the Ritter College. Bradley offers an accelerated one year program, with a tuition cost of 7500 $ to be paid upon matriculation. Books and other supplies for the program are expected to cost 3500$. Ben thinks that he will receive an offer of 78000$ per year upon graduation, with the 10000$ 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 that will cost 3000% per year, payable at beginning of the year. Ben also estimates that room and board expenses will cost 20,000$ per year at both schools. The appropriate discount rate is 6.5%.
Questions: 1.
How does Ben’s age affect his decision to get an MBA?
2.
What other, perhaps non-quantifiable, factors affect Ben’s decision to get an MBA?
3. Assuming all salaries are paid at the end of each year, what is the best option for Ben from strictly financial standpoint?
Q1- How does Ben’s age affect his decision to get an MBA?
Ben graduated 6 years ago, as a Finance Major. The time period he has taken off from education and invested into his career, is a hindrance to his enrollment into MBA program. The long break from education, simply, means lack of concentration and serious attitude towards studies. Moreover, since he is already employed, his career decision will have to be altered. He plans to work for 35 more years. He has to carefully decide whether he needs to enroll into the program or not. If he does, then he would have only 33 more years of work, which is not consistent with his initial plan.
Q2- What other, perhaps non-quantifiable, factors affect Ben’s decision to get an MBA?
Non-quantifiable, by definition means, not being able to allocate the quantity or determine the quantity. In case of Ben, there is a list of such factors. • He will have to alter his attitude to divert it towards education since he has been on a 6-year gap from university • He would have to invest his time, as he is already employed and needs to find time to enroll into fulltime MBA program. • Consider the geographical diversity: he has to consider the location of his preferred university. • Demonstrated leadership • Moral Character • Analytic Ability • Maturity • Character references
• Racial/Ethnic/Cultural background • Stated Goals • Communication Skills • Demonstration of Commitment and Determination • Prior Applicants • Creativity • Attention to Detail • Extracurricular Activities • His expectation of medical needs; for example, what if the health plan at the universities doesn’t cover large payments • Alumni are a big factor. being able to network with a large number of them helps a lot in the future
Q3- Assuming all salaries are paid at the end of each year, what is the best option for Ben from strictly financial standpoint?
Ben expects that after graduating from Wilton, he will receive a job offer for about 95000 per year, with a 15000 signing bonus. The Salary will increase at 4% per year. Because of the higher
salary, his average income tax rate will increase to 31%. Similarly, after graduating from Mount Perry, Ben expects that he will receive an offer of 78000$ per year upon graduation, with the 10000$ signing bonus, the salary will increase at 3.5% per year. His average tax rate at this level of income will be 29%. Staying at the current job, will result in his annual income of $50, 000 with a 3% increment on his salary, annually. His average tax rate would be 26%. If he decides to stay, he will continue earning what he is earning at the moment. His net income in 35 years of career will be $750,763. If he decides to go to Rifter or Bradley, during the period of his enrolment, he will not have income, cash inflow; instead there will be cash outflow from his savings. But after, In case of graduating from Wilton university, his total income will be $113,800 and after deducting the tax rate (31%) his net income at the end of the year will be three lack sixty six thousand nine hundred and ninety six($366996). In case of Mount Perry College, his total income will be $90730 and after subtracting the tax rate (29%) his net income at end of the year will be three lack twelve thousand seven hundred and sixty two ($312762). By comparing the Net incomes, for Ben the best option, from strictly financial point of view, will be Wilton University. As after graduating from this university he will have superior salary package with high increasing rate and bonus.
