Cost Planning; The Cost of an MBA; Time Value of MoneyThe motivation for getting the MBA degree has many aspects—the prestige, greater opportunity for promotion, change of occupation, and increase in pay. To focus just on this last motivation, suppose that you are interested in getting an MBA and are studying the various programs in the United States. You want to balance the costs of getting the degree against the future benefits in increase of pay. You have information on the cost of two MBA programs, which includes the costs of tuition, living expenses, and forgone pre-MBA salary for the two years you are in the MBA program. School A has an average cost of $100,000, and school B, a far more prestigious school at which you think your grades would qualify you to be a suc-cessful applicant, has a cost of $250,000.
Cost Planning; The Cost of an MBA; Time Value of MoneyThe motivation for getting the MBA degree has many aspects—the prestige, greater opportunity for promotion, change of occupation, and increase in pay. To focus just on this last motivation, suppose that you are interested in getting an MBA and are studying the various programs in the United States. You want to balance the costs of getting the degree against the future benefits in increase of pay. You have information on the cost of two MBA programs, which includes the costs of tuition, living expenses, and forgone pre-MBA salary for the two years you are in the MBA program. School A has an average cost of $100,000, and school B, a far more prestigious school at which you think your grades would qualify you to be a suc-cessful applicant, has a cost of $250,000.
RequiredAssume that you have a 10-year planning horizon, that the difference in pay for a job after both schools would remain the same for all 10 years, and the relevant cost of borrowing is 6%. Based on increase in pay only, how great would the increase for a job after leaving school B have to be relative to school A for you to be indifferent between the two schools? (Hint: The present value factor for an annuity of 10 years at 6% is in Table 2 at the end of Chapter 12 and equals 7.360.)
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