Case Study 1: The MBA decision
Ben’s age affects the number of years he has to work before he retires.
The more he works, the more money he can make in the future out of the job offer he gets after finishing his MBA. Thus, he can offset the cost of his MBA education more easily if he has more years of work before he retires.
The net present value of taking up job after MBA will increase as he will have more income for the additional number of years he works.
Apart from the financial constraints, Ben’s decision to get an MBA can be affected by non-quantifiable factors like :
a) His personality traits like risk taking attitude or risk aversion attitude.
b) His confidence in getting a good job offer after finishing his degree.
c) His inclination towards getting a post-graduate degree in other fields rather than business administration.
d) His family/personal like health situations can also impact his decision to choose his MBA over his current job offer. For example, staying away from the family may not be a feasible option for him or his health might not permit him to go through the rigorous coursework of an MBA.
From financial point of view, Ben should Ritter College of Business at Wilton University as the NPV1 ($1,328,787.60) of this option is higher than the NPV2($1,246,722.79 ) of the Bradley School of Business at Mount Perry College.
Using the NPV values, the net present value rule decides if an acquisition or project is worth it. A higher NPV is always desirable as it leads to greater wealth creation. Higher NPV means more dollars earned if we take up the project.
The appropriate analysis can be done by calculating the future value of each option. But, the same result can also be reached at by calculating the present value of each option as well. Both future value analysis and present value analysis lead to the same decision and it does not matter which approach...