CSU ESSP 495- The MBA Decision:Ben Bates graduated from college six years ago

| September 13, 2018

Case Study 1 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 this 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 $ 55,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 38 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Ben has a 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 $ 63,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $ 2,500 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $ 98,000 per year, with a $ 15,000 signing bonus. The salary at this job will increase at 4 percent per year. Because of the higher salary, his average income tax rate will increase to 31 percent. 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 $ 80,000 to be paid upon matriculation. Books and other sup-plies for the program are expected to cost $ 3,500. Ben thinks that he will receive an offer of $ 81,000 per year upon graduation, with a $ 10,000 signing bonus. The salary at this job will increase at 3.5 percent per year. His average tax rate at this level of income will be 29 percent. 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 $ 20,000 per year at both schools. The appropriate discount rate is 6.5 percent.Assuming all salaries are paid at the end of each year, what is the best option for Ben from a strictly financial standpoint?Personal Finance Case #2Jennifer Barry, 25, is not unlike many young adults today. Just a few years out of college, she is $23,300 in debt. Of this amount, $16,000 is owed on student loans and $7,300 is owed on two credit cards. “I kind of went overboard on credit in college,” Barry explains. “Now I want to get this debt paid off as soon as possible so I can increase my savings.”Barry isn’t waiting to repay the debt, however, before she starts saving. She participates in a 403(b) plan at work and is currently saving bi-weekly. To date, she has accumulated $2,800 but she is unsure about whether she selected the right investment options. She puts 25% of her deposit in a stock index fund, 25% in aggressive growth, 25% in an actively managed growth fund, and 25% in a money market fund. “I wasn’t sure what to do,” she notes, “so I made the same choices as a co-worker.”Automatic saving appeals to Barry, who confesses a weakness for shopping. She’d like to save more, both for retirement in her 403(b) plan and for emergencies. “I don’t have much to fall back on if my car breaks down or I have some other emergency,” she worries. After repaying her debts and increasing her savings, Barry wants to purchase a home and a new car within ten years. She is willing to assume some investment risk to achieve a high rate of return.Like many young college graduates, Barry has a negative net worth. In other words, at this stage of her life, her debts ($23,300) exceed her assets ($5,600) for a net worth of minus $17,700. Her assets consist of $800 in a checking account, her $2,800 403(b), and a $2,000 car.Barry shares an apartment with a friend and pays $350 per month for rent, plus $320 toward her four debts. She earns $28,900 annually ($2,408 per month). Last year, Barry received a $685 tax refund and spent it on clothing and home furnishings.Barry’s employer provides health insurance. She participates in an HMO and is satisfied with the level of service. She lacks a renter’s insurance policy, however, to cover the potential loss or theft of her personal possessions. Her automobile insurance policy has $100,000 of liability coverage. Barry also has employer provided disability insurance to provide income if she was unable to work and contributes $14.04 per month toward the premium. The policy only provides benefits for two years.Barry is not currently funding an IRA and could only guess at a retirement date in 40 years at age 65. She attended an employee benefits seminar two years ago and began her 403(b) plan as a result. “I learned about the awesome effect of compound interest,” she notes. “As soon as I repay my debts, I will save more.”Case study 3Review the Project Finance for Autopistas del Centro case and provide a written answer to the following questions:Assess the situation of the project until mid-2009. Make sure to discuss the pros and cons of the project at initiation in 2004, the project returns in the initial business plan and the effect of the revised business plan on the project’s profitability. Note that calculations are not required for this question, instead the case information in text, tables and exhibits should be analyzed and discussed.What are the companies options to make the project viable in mid-2009? When answering this question consider the new capital injections by shareholders in case the financial institutions do not withdraw their financing.Assess the possible sale as discussed by the AC Board of Directors on May 15, 2009 and consider how you would negotiate a possible price at which to sell the project to a new operator. When answering this question, consider the price required by current shareholders. Also consider the price the new operator would be willing to pay under the possibilities for creating value in the company as outlined by Martínez.Clarification to the case text: The notes provided on page 117 of the case are not correctly numbered within the text. Note 1 of page 117 refers to Table 2 “Expropriations2”. Note 2 refers to Table 3 “VAT Credit3”. Note 3 refers to Table 3 “Total”. Note 5 refers to the text following Table 6 on page 115, i.e. “As of the second year of operation (2008) the DSCR has to be over 1.1”. Note 6 refers to the text following Table 6 on page 115, i.e. “… and the return due to the shareholders (the IRR of the shareholders’ FCF) was 8.09 percent.2”.

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