Case: The MBA Decision

OLEH:
ANDRE TRIANSYAH PUTRA (01012681822027)

KARTIKA PALUPI (01012681822003)

VIRGIN VINENZIA (01012681822010)

NIA MARIA (01012681822011)

MAGISTER MANAJEMEN
UNIVERSITAS SRIWIJAYA
2018
Case: The 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 his 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 internship, no salary
can be paid. Other than internships, neither school will allow its students to work while
enrolled in its MBA program.

Ben currently works at the money management firm of Dewey and Louis. His annual
salary at the firm is $65,000 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 %. Ben
has savings account with enough money to cover the entire cost of his MBA program.

The Ritter College of Business at Wilton 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 $70,000, payable at the beginning of each school year. Books and other
supplies are estimated to cost $3000 per year. Ben expects that after graduation from Wilton,
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 Bradley School of Business at Mount Perry College began its MBA program 16
years ago. The Bradley School is smaller and less well known than the Ritter College.
Bradley offers an accelerated, one – year program, with a tuition cost of $85,000 to be paid
upon matriculation. Books and other supplies for the program are expected to cost $4,500.
Ben 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. Ben 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.

Questions:

1. How does Ben’s age affect his decision to get an MBA

 Umur semakin bertambah. Umur Ben yang sudah menginjak 28 tahun
sekarang bisa menjadi pertimbangan Ben untuk menempuh pendidikan lagi.
 Belum tentu mendapat pekerjaan yang baik seperti sekarang. Karena sekarang
Ben sudah bekerja di perusahaan money firm manajemen, belum tentu nanti
ketika ia sudah lulus MBA akan mendapatkan pekerjaan yang lebih baik.
Apalagi di usianya yang sudah menginjak 30 tahun
  Biaya kuliah yang dikeluarkan tentu akan lebih besar jika ia mengambil gelar
MBA di kedua universitas yang akan dipilihnya.

2. What other, perhaps nonquantifiable factor affects Ben’s decision?

Faktor yang tidak diperhitungkan oleh Ben yang mungkin terjadi adalah belum tentu
ia bisa menyelesaikan study nya tepat waktu. Bisa jadi terjadi masalah ditengah-
tengah perkuliahan sehingga Ben tidak bisa menyelesaikan MBA-nya tepat waktu
seperti yang ia perkirakan.

3. Assuming all salaries are paid at the end of each year, what is the best option for Ben
from a strictly financial point?
Ada beberapa faktor yang harus dipertimbangkan untuk menghitung nilai sekarang
(PV) dari opsi pertama adalah: Gaji tahunannya di perusahaan adalah $ 65.000 per
tahun, dan gajinya diperkirakan akan meningkat sebesar 3% per tahun sampai
pensiun, pajak rata-rata saat ini tingkatnya 26% dan tingkat diskonto adalah 6,5
persen.

I. Dalam hal ini, untuk mendapatkan nilai sekarang (PV), kita dapat menggunakan
rumus tunjangan yang terus bertambah.

Salary = $65,000, tax rate = 26%, because of tax rate, c = $48.100

R (discount rate) = 6.5%
G (growth rate) = 3%
T (the number of period working) = 40
So the PV is = $ 1.015.583,4

Present Value (PV) of Growing Annuity.

PVGA = C (1 – ( (1+g)/(1+r))t / r – g )
PVGA= $48.100 (1 – ((1+3%)/(1+6.5%))40 / 6.5% - 3%)
PVGA = $48.100(1 – ((1.03)/(1.065))40 / 0.035)
PVGA = $ 48.100 (1 – 0.261 / 0.035)
PVGA = $48.100 (0.739 / 0.035)
PVGA = $48.100 (21.114)
PVGA = $ 1.015.583,4

II. Getting the MBA at Wilton University

Dalam hal ini, harus menghitung 4 bagian:

A. PV gaji selama 38 tahun (40 - 2 tahun)
B. PV bonus penandatanganan
C. PV biaya selama 2 tahun (uang kuliah, buku dan persediaan, asuransi kesehatan
dan biaya sewa)
D. PV gaji 2 tahun ketika dia akan bekerja di perusahaan firm manajemen
A. PV of salary for 38 years

Faktor-faktor yang perlu dipertimbangkan adalah: Dia akan menerima tawaran

pekerjaan sekitar $ 110.000 per tahun, dengan bonus penandatanganan $ 20.000. Gaji
pada pekerjaan ini akan meningkat 4% per tahun. Karena gaji yang lebih tinggi, tarif
pajak penghasilan rata-ratanya akan meningkat menjadi 31%.

Salary = $110,000, tax rate = 31%, so, C = $75,900

R (discount rate) = 6, 5%
G (growth rate) = 4%
T (the number of period working) = 38 (40 years – 2 years)
So the PV is = $ 1,806,116.4

Present Value (PV) of Growing Annuity.

PVGA = C (1 – ( (1+g)/(1+r))t / r – g )
PVGA = $75 900 (1 – ( (1+4%)/(1+6.5%))38 / 6.5% - 4%)
PVGA = $75 900 (1 – ((1.04)/(1.065))38 / 0.025)
PVGA = $75 900 (1 – (0.9765)38 / 0.025)
PVGA = $75 900 (1 – (0.40508) / 0.025)
PVGA= $75 900 (0.5949/0.025)
PVGA = $75 900 (23.796)
PVGA = $ 1,806,116.4

B. PV of signing bonus

Faktor yang perlu dipertimbangkan adalah:

Signing bonus = $ 20,000
R (discount rate) = 6, 5%
T (the number of period working) = 38
So the PV is = $17,633.57
PV = FV / (1+r)t
PV = $20 000 / (1.065)38
PV = $20 000 / 1.1342
PV = $17,633.57

C. PV of cost for years ((tuition, books and supplies, health insurance and rent
fee)

Faktor-faktor yang perlu dipertimbangkan adalah: uang sekolah $ 65.000, Buku dan
perlengkapan lainnya diperkirakan berharga $ 3000 per tahun. Rencana asuransi
kesehatan yang akan menelan biaya $ 3.000 per tahun, biaya kamar dan makan akan
menelan biaya $2.000.

Cost = $65 000 + $3000 + $3000 + $2000 = $ 73 000

 R (discount rate) = 6, 5%
T (the number of period studying) = 2
So the PV is = $ 132,860

Present Value (PV) of Annuity:

PVA = c ( 1 – (1/(1+r)t / r )
PVA = $73 000 ( 1 – (1/(1.065)2 / 6.5%)
PVA = $73 000 ( 1 – (1/1.1342 / 0.065)
PVA = $73 000 (1 – 0.8817 / 0.065)
PVA = $73 000 (0.1183 / 0.065)
PVA = $73 000 (1.82)
PVA = $ 132,860

D. PV of 2 years salary when he would work at the money management firm.

Faktor-faktor yang perlu dipertimbangkan adalah: Gaji tahunannya di perusahaan

adalah $ 65.000 per tahun, dan gajinya diperkirakan akan meningkat sebesar 3% per
tahun hingga pensiun, tarif pajak rata-rata saat ini adalah 26% dan tingkat diskonto
adalah 6,5 persen.

Salary = $60,000, tax rate = 26%, because of tax rate, c = $48.100

R (discount rate) = 6.5%
G (growth rate) = 3%
T (the number of period working) = 2
So the PV is = $88.917,66

Present Value (PV) of Growing Annuity.

PVGA = C (1 – ( (1+g)/(1+r))t / r – g )
PVGA = $48.100 (1 – ((1+3%)/(1+6.5%))2 / 6.5% - 3%)
PVGA = $48.100 (1 – ((1.03)/(1.065))2 / 0.035)
PVGA = $48.100 (1 – 0.9353 / 0.035)
PVGA = $48.100 (0.0647/0.035)
PVGA = $48.100 (1.8486)
PVGA = $88.917,66

III. Getting the MBA at Mount Perry College

Dalam hal ini, harus menghitung 4 bagian:
A. PV gaji selama 39 tahun (40 - 1 tahun)
B. PV bonus penandatanganan
C. PV biaya selama 2 tahun (uang kuliah, buku dan persediaan, asuransi kesehatan
dan biaya sewa)
D. PV gaji 1 tahun ketika dia akan bekerja di perusahaan firm manajemen.
A. PV of salary for 39 years

Faktor-faktor yang perlu dipertimbangkan adalah: dia akan menerima tawaran $

92.000 per tahun pada saat kelulusan. Gaji pada pekerjaan ini akan meningkat 3,5%
per tahun. Tingkat pajak rata-rata pada tingkat pendapatan ini akan menjadi 29%.

Salary = $ 92,000, tax rate = 29%, so, C = $ 65,320

R (discount rate) = 6, 5%
G (growth rate) = 3, 5%
T (the number of period working) = 39
So the PV is = $1.463.821.2

Present Value (PV) of Growing Annuity.

PVGA = C (1 – ( (1+g)/(1+r))t / r – g )
PVGA = $65 320 (1 – ((1+3.5%)/(1+6.5%))39 / 6.5% - 3.5%)
PVGA = $65 320 (1 – 0.3277/ 0.03)
PVGA = $65 320 (0.6723/0.03)
PVGA = $65 320 (22.41)
PVGA = $1.463.821.2

B. PV of signing bonus
Faktor-faktor yang perlu dipertimbangkan adalah:
Signing bonus = $ 18.000
R (tingkat diskon) = 6, 5%
T (jumlah periode kerja) = 39
So the PV is = $ 15.870,22

PV = FV / (1+r)t
PV = $18 000 / (1.065)39
PV = $18 000 / 1.1342
PV = $15.870,22

C. PV of cost for 1 years ((tuition, books and supplies, health insurance and rent
fee)

Faktor-faktor yang perlu dipertimbangkan adalah: uang sekolah $ 85.000, Buku-buku

dan perlengkapan lain untuk program ini diperkirakan berharga $ 4.500. Rencana
asuransi kesehatan yang akan menelan biaya $ 3.000 per tahun, biaya kamar dan
makan akan menelan biaya $ 2.000.

Cost = $ 94.500
R (discount rate) = 6, 5%
T (the number of period studying) = 1
So the PV is = $88.727,94

Present Value (PV) of Annuity:

PVA = c ( 1 – (1/(1+r)t / r )
PVA = $94.500 ( 1 – (1/(1+6.5%)1 / 6.5% )
PVA = $94.500 (0.06103 / 0.065)
PVA = $94.500 (0.93892)
PVA =$88.727,94

D. PV of 1 year’s salary when he would work at the money management firm.

Faktor-faktor yang perlu dipertimbangkan adalah: Gaji tahunannya di perusahaan

adalah $ 65.000 per tahun, dan gajinya diperkirakan akan meningkat sebesar 3% per
tahun hingga pensiun, tarif pajak rata-rata saat ini adalah 26% dan tingkat diskonto
adalah 6,5 persen.

Salary = $65,000, tax rate = 26%, because of tax rate, c = $48.100

R (discount rate) = 6.5%
G (growth rate) = 3%
T (the number of period working) = 1
So the PV is = $

Present Value (PV) of Growing Annuity.

PVGA = C (1 – ( (1+g)/(1+r))t / r – g )
PVGA = $48.100 (1 – ((1+3%)/(1+6.5%))1 / 6.5% - 3%)
PVGA = $48.100 (1 – 0.9671 / 0.035)
PVGA = $48.100 (0.0329 / 0.035)
PVGA = $48.100 (0.94)
PVGA = $45.214

Jadi pilihan terbaik untuk Ben Bates adalah mendapatkan MBA di Wilton University.
Dia akan menerima lebih banyak uang setelah menyelesaikan studi dan mendapatkan
gaji dan bonus penandatanganan dengan total nilai sekarang $ 1 823 749,97. Biaya
studi nilai sekarang di Universitas Wilton (biaya kuliah, buku dan persediaan,
asuransi kesehatan dan biaya sewa) adalah $ 132.860 dan biaya studi nilai sekarang di
Mount Perry College (uang kuliah, buku dan persediaan, asuransi kesehatan dan biaya
sewa) adalah $ 84 033.34 . Karena Ben memiliki rekening tabungan dengan cukup
uang untuk menutupi seluruh biaya program MBA, itu adalah pilihan terbaik baginya
untuk mendapatkan MBA di Universitas Wilton.
4. Ben believe that the appropriate analysis is to calculate the future value of each
option. How would you evaluate this problem?

1. Keeping his current work for 40 years

Ada beberapa faktor yang harus dipertimbangkan untuk menghitung nilai masa depan
(FV) dari opsi pertama adalah: Gaji tahunannya di perusahaan adalah $ 65.000 per
tahun, dan gajinya diharapkan meningkat pada 3% per tahun sampai pensiun, pajak
rata-rata saat ini tingkatnya 26%.

Dalam hal ini, untuk mendapatkan nilai sekarang (PV), kita dapat menggunakan
rumus tunjangan yang terus bertambah.

Salary = $65,000, tax rate = 26%, because of tax rate, c = $48,100

G (growth rate) = 3%

T (the number of period working) = 40

So the FV is = $12.609,483.4944

FV = PV x (1+r)t

FV = $1,015,583.4 (1.065)40

FV = $1,015,583.4 (12.416)

FV = $12,609,483.4944

2. Getting the MBA at Wilton University

Dalam hal ini, harus menghitung 4 bagian:

A. FV gaji selama 38 tahun (40 - 2 tahun)

B. FV bonus penandatanganan

C. FV biaya selama 2 tahun (uang kuliah, buku dan persediaan, asuransi kesehatan
dan biaya sewa)

D. FV gaji 2 tahun ketika dia akan bekerja di perusahaan manajemen uang.

A.FV of salary for 38 years

Faktor-faktor yang perlu dipertimbangkan adalah: Dia akan menerima tawaran

pekerjaan sekitar $ 110.000 per tahun, dengan bonus penandatanganan $ 20.000. Gaji
pada pekerjaan ini akan meningkat 4% per tahun. Karena gaji yang lebih tinggi, tarif
pajak penghasilan rata-ratanya akan meningkat menjadi 31%.
Salary = $110,000, tax rate = 31%, so, C = $75,900

G (growth rate) = 4%

T (the number of period working) = 38

So the FV is = $19,771,099.95

FV= PV x (1+r)n

FV = $1 806 116.4 (1.065)38

FV = $1 806 116.4 (10.94674)

FV = $19,771,099.95

D. FV of 2 years salary when he would work at money management firm

FV = PV (1+r)n

FV = $88 916 (1.065)2

FV = $100,850.75

3. Getting the MBA at Mount Perry College

Dalam hal ini, harus menghitung 4 bagian:

A. FV gaji selama 39 tahun (40 - 1 tahun)

B. FV bonus penandatanganan

C. FV biaya selama 2 tahun (uang kuliah, buku dan persediaan, asuransi kesehatan
dan biaya sewa)

D. FV gaji 1 tahun ketika dia akan bekerja di perusahaan manajemen uang.

A. FV of salary for 39 years (40 – 1 years)

Faktor-faktor yang perlu dipertimbangkan adalah: dia akan menerima tawaran $

92.000 per tahun pada saat kelulusan. Gaji pada pekerjaan ini akan meningkat 3,5%
per tahun. Tingkat pajak rata-rata pada tingkat pendapatan ini akan menjadi 29%.

Salary = $ 92,000, tax rate = 29%, so, C = $ 65,320

G (growth rate) = 3, 5%
R = 6.5%

T (the number of period working) = 39

So the FV is = $17,065,646.13

FV = PV (1+r)n

FV = $1 463 821.2 (1.065)39

FV = $17 065 646.13

B. FV of signing bonus

Faktor-faktor yang perlu dipertimbangkan adalah:

Signing bonus = $ 18,000

G (Growth rate) = 0%

T (the number of period working) = 39

So the FV is = $ 17,999.991

FV = PV (1+r)n

FV = $16 901.4 (1.065)2

FV = $ 17,999.991
C. FV of costs for 2 years (tuition, books and supplies, health insurance and rent
fee)

FV = PV (1+r)n

FV = $88 735,5 (1.065)

FV = $ 94,503.3

D. FV of 1 years salary when he would work at the money management firm.

FV = PV (1+r)n
 FV = $45 214 (1.065)1
FV= $48,152.91

Dengan menghitung nilai masa depan setiap opsi:

Nilai sekarang dari gajinya $1.015.583,4 sama dengan nilai masa depan
$12,609,483,4944 ketika tetap pada pekerjaannya saat ini selama 40 tahun. Nilai gaji
sekarang $1,806,116.4 sama dengan nilai masa depan $ 19.771.099,95 ditambah
bonus penandatanganan $ 20.000 ketika memiliki pekerjaan selama 38 tahun setelah
mendapatkan MBA di Wilton University. Nilai gaji saati ni $ 1,463,821.2 sama
dengan nilai masa depan$ 17,065,646.13 ditambah
$ 18.000 menerima bonus ketika memiliki pekerjaan selama 39 tahun setelah
mendapatkan MBA di Mount Perry College. Pilihan terbaik adalah dia belajar di
Universitas Wilton.

5. What initial salary would Ben need to receive to make him indifferent between
attending Wilton University and staying in his current job?
Wilton University and staying to his current position ?
Staying in his current position PV1 : $ 1.015.583,4
PV In MBA Wilton University PV 2 : $ 1.806.116,4
When PV1 = PV2
C1 : $ 75.900*23,79
21,11 C1 : $ 1.805.661
C1 : $ 1.805.661/21,11
: $ 85.535,8

6. Suppose, instead of being able to pay cash for his MBA, Ben must boirrow the
money. The current borrowing rate is 5,4%. How would this affect his decision?
PV = $156,000
r = 5.4%
T = 10 years
Loan payment =
C=(r(PV))/〖1-(1+r)〗^(-T)
C=(5.4%($156,000))/〖1-(1+5.4%)〗^(-10)
C=$8,424/〖1-(1.054)〗^(-10)
C=$8,424/0.408=$20,647.05
Total loan payment that Ben pay for ten years $206,470.558

Ritter College annual cost $94,500 for one year. The borrow 5,4% Assuming that he
pay out the interest every year for 10 years.
PV=$94,500
r = 5.4%
T = 10 years
Loan payment =
C=(r(PV))/〖1-(1+r)〗^(-T)
C=(5.4%($94,500))/〖1-(1+5.4%)〗^(-10)
C=$5,103/〖1-(1.054)〗^(-10)
C=$5,103/0.408=$12,507.35
Total loan payment that Ben pay for ten years $125,073.52

From the data we gathered, his age will not directly interfere with his education, his
motivation and commitment will be main factor in whether he decide to get an MBA.