Effect of age
Age is an important consideration when making such a decision because while taking the option of studying at Ritter College of Business at Wilton University, a one-year salary is lost in studies when compared to taking the second option of a one-year MBA program at Mt. Perry College. On the other hand, studying at Wilton guarantees a job with higher annual remuneration, and a better pay increment rate (Ross, Westerfield & Jaffe, 2013). This consideration is important in making a decision on which university to attend for the MBA program.
Other non-quantifiable factors that affect Ben’s decision to get an MBA
Another consideration to make regarding the decision on which MBA program to take is the terms of employment following his graduation. It seems taking the studies at Mt. Perry College results in early employment yet the remuneration is $18,000 less than taking the two-year program at Wilton University. Other terms and conditions of work may influence the decision that Ben makes, including benefits such as health insurance, housing, transport, and education cover, which are not mentioned in the case study following his higher pay (Kimmel, Weygandt & Kieso, 2010).
The best option
The best option that I can advise Ben is taking the two-year MBA program at Wilton, which may result in expending an extra $56,500 for tuition, plus $110,000 the first year salary following taking the one-year MBA program at Mt. Perry College and early employment (Kimmel et al., 2010). On the other hand, the remuneration following the completion of the two-year program is high by $20,000 in the first year of employment, and $18,000 in the subsequent years in addition to an increasing compounded growth of the annual salary increment, which is greater than that of the salary following the completion of the one-year MBA program by 0.5% pa (Ross et al, 2013). Moreover, evaluating the cumulative salary at retirement, the first option yields a higher compounded interest as opposed to the second option, where the difference between the two from the present value of compensation is more than $400,000 over the span of 38 years following the first option and 39 years in the second option after completion of studies.
Ben believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement?
This statement is true. In order to make an informed choice, a definition of which option deems the best value, a financial standpoint is required with an evaluation of both the present value of expenditure or costs invested in the studies and the outcome following completion of the program and absorption into employment.
The initial salary that Ben would need to receive to make him indifferent
The initial salary would be greater than that of option two entailing the one-year MBA program. Providing him with a salary greater than $92,000 would, first deter Ben from taking this option, but still, provide him with dire influence in taking the first option (IMA, 2012).
Impact of borrowing money
Borrowing the money, which is paid with an interest, translates to higher expenses in paying for school fees in both cases whichever option. Both MBA program options are affected in the same way since the same rate is used in the borrowed money (Ross et al., 2013). A decision on whether to proceed with the MBA or not is affected considering the cumulative amount, in any case, expensed in financing the MBA program, and staying in the current position.
IMA. (2012). Wiley CMA Learning System Exam Review 2013, Financial Decision Making, + Test Bank (2nd Ed.). Hoboken, NJ: Wiley.
Kimmel, P., Weygandt, J., & Kieso, D. (2010). Financial Accounting: Tools for Business Decision Making. Hoboken, NJ: John Wiley & Sons.
Ross, S., Westerfield, R., & Jaffe, J. (2013). Corporate finance, (10th Ed.). New York, NY: McGraw-Hill Irwin.