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The document discusses a friend's decision on whether to invest in a two-year MBA program, weighing the costs, potential salary increase, and risks associated with taking a large loan. It outlines projected costs totaling $110,000, the impact of opportunity costs from lost earnings, and suggests alternatives to reduce financial uncertainty, such as pursuing a part-time MBA or postponing the degree. Ultimately, it advises gathering more job market information and consulting with others who have taken similar paths to make an informed decision.

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4 views

z6

The document discusses a friend's decision on whether to invest in a two-year MBA program, weighing the costs, potential salary increase, and risks associated with taking a large loan. It outlines projected costs totaling $110,000, the impact of opportunity costs from lost earnings, and suggests alternatives to reduce financial uncertainty, such as pursuing a part-time MBA or postponing the degree. Ultimately, it advises gathering more job market information and consulting with others who have taken similar paths to make an informed decision.

Uploaded by

dqc5d7mpy5
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Parducho, Xandra Parducho

3BSIE

Your friend is considering investing in a two-year MBA program. Tuition costs will be $60,000 for two years
while living expenses will be $25,000 per year. She has $10,000 in savings, which she can spend on her
education, and will need to borrow the rest from her bank. Her annual loan repayment will be $10,500 for 10
years. She currently works as an analyst and makes $60,000 a year;after she gets her degree she hopes to
work as a manager for $150,000 a year.

Refer to the seven-step procedure to answer these questions:

(a) How should your friend formulate her problem?

My friend is trying to decide whether or not to invest in an MBA degree. MBA has been shown to a higher salary that
my friend is expecting after finishing the degree. However she is not sure whether she will get her dream job, as she
hopes to works as a manager and paid $150,000 per year. Her problem, therefore, is the risk. The risk of acquiring a
large loan of $100,000 to pay for her MBA.

(b) What are her projected costs? (Identify all costs)

Tuition fee ($60,000 for 2 years) and $25,000 for living expenses per year. A total of $110,000 for her MBA.
Therefore she will only loan a $100,000 because she has $10,000 on her savings.
Annual loan repayment is $10,500 for 10 years a total of $105,000.
The generated interest cost is $5000.
She will experience earning losses of $120,000 over the two years, due to the fact that she will quit her job to pursue
masters program. This is the Opportunity cost she has to pay.

(c) Suggest alternatives to your friend to reduce the uncertainty associated with finding a high-income job to
pay off her loan.

She should consider doing a lower-cost degree, such as part-time MBA, which will allow her to work while still doing
the MBA. This will reduce the direct and indirect costs of the MBA program. Also, the size of the debt will reduce
since she will still be earning to fund her MBA finances. However, her expected income after this degree may also be
+-lower.

She should consider postponing the MBA and save more money for it rather than taking a loan for it. his is a method
or way of reducing the size of the loan and Interest costs that she will have to take. However, she will have to
continues earning at lower income level until the time she will do and complete the MBA. c

She should consider not doing the MBA and keep working in the current job with the income level she is having.

(d) Select a criterion for discriminating among alternatives, and use it to advise your friend on which course
of action to pursue.

Poption, which are favoring less or no debts.

(e) Attempt to analyze and compare the alternatives in view of at least one criterion in addition to cost.

Credit worthiness - this is an additional considerable criterion for which she has to be concerned about her credit
rating. In this case, Acquiring such a big loan without a guaranteed job after the completion of MBA would be ruled
out. This means that option (3) may be her only best option.

(f) What should your friend do based on the information you and she have generated?

In order to reduce uncertainty regarding employment, my friend should consider gathering more information and all
data related to the job market in both the geographical area and the field where wants to specialize.
Also finding out about the best MBA programs which are particularly strong in increasing her employment chances in
her chosen job industry. it will also be advisable for her to consider negotiating for a job with a desired employer
before starting the MBA program to improve the chances of securing a job immediately after her MBA.

She should also consult other people who have taken the same choice of acquiring loans to fund their education.
This will provide an insight. This will give clear insight of the possible risks or benefits of her considered choice.

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