1) How does Safdar’s age affect his decision to get an MBA?

Safdar’ age will affect his decision to get an MBA in the sense that the earlier he gets an MBA the better off he will be. As he is
We look at this from a time value of money point of view as Safdar’s age is the deciding factor if he should go continue his MB

2) What other, perhaps non-quantifiable, factors affect Safdar’s decision to get an MBA?
There can be following factors that can affect his decision to pursue MBA: -
1) Career aspirations in terms of better salary
2) Job security
3) Job satisfaction
4) Possible post-retirement benefits
e better off he will be. As he is currently 28 years old and working for six years already MBA normally takes about 2 years he will be in his e
he should go continue his MBA or not.
bout 2 years he will be in his early 30s. If he waits till he is 35 years old to get an MBA, it might be harder due to the fact that he has been
e to the fact that he has been out of school for so long that he may have forgotten information.
Qs 3
0 1 2 3 38
Today
K&K
IBA 0.88 0.94 1,380,160
Hailey 0.94 1,214,541

Qs 4
0 1 2 3 38

K&K
IBA 0.88 0.94 1,380,160
Hailey 0.94 1,214,541
Option of Pursuing Existing Job

C 53,000.00 0.74 39,220

g 0.03
r 0.065
T 38
r-g 0.035
1+g/1+r 0.97
power 38 0.28
1-power38 0.72
PV 805,819

PV 805,819.00
g 0.03
r 0.065
T 38
1+r 1.065
power 38 10.95

FV 8,821,097
There will be three components
Institute of Business Administration (IBA) at Punjab U
Component 1: 36 Years Salary
C 87,000 0.69 60,030
g 0.04
r 0.065
T 36
r-g 0.025
1+g/1+r 0.98
power 36 0.43
1-power 36 0.57
PV 1,380,160
Discount Factor for 2 years 0.88 0.94
PV 1,214,541 0.94

0.88
Component 2: Signing Bonus
C 10,000 0.69 6,900
g 0
r 0.065
T 2
1/1+r 0.94
power 2 0.88 Breakup of Study Expenses
PV 6,083 Tution 58,000
Books 2,000
Component 3: Study Expenses Insurance 3,000
C 59,000 Room Expenses (4,000)
g 0
r 0.065 Total 59,000
First Year (Actual) 59,000
2nd Year Fee Discount Factor 0.94
PV (2nd Year Beg) 55,460
Total PV 114,460

CALCULATION OF NPV

1,214,541
6,083
(114,460)
NPV 1,106,164
ration (IBA) at Punjab University is one of the top MBA programs in the country. The MBA degree requires two years of full-time enrollme
wo years of full-time enrollment at the university. The annual tuition is PKR58,000, payable at the beginning of each school year. Books an
of each school year. Books and other supplies are estimated to cost PKR2,000 per year. Safdar expects that after graduation from PU, he w
after graduation from PU, he will receive a job offer for about PKR87,000 per year, with a PKR10,000 signing bonus. The salary at this job w
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 3
ome tax rate will increase to 31 percent.
 Salary
Gross Growth
Year Salary Factor
0 There will be three components
11 #REF! 1
12 #REF! 1 Component 1: 37 Years Salary
13 #REF! 1 C 78,000 0.71 55,380
14 #REF! 1 g 0.035
15 #REF! 1 r 0.065
16 #REF! 1 T 37
17 #REF! 1 r-g 0.030
18 #REF! 1 1+g/1+r 0.97
19 #REF! 1 power 37 0.35
20 #REF! 1 1-power 37 0.65
21 #REF! 1 PV 1,204,659
22 #REF! 1 Discount Factor for 1 years 0.94
23 #REF! 1 PV 1,132,379
24 #REF! 1
25 #REF! 1
26 #REF! 1 Component 2: Signing Bonus
27 #REF! 1 C 8,000 0.69 5,520
28 #REF! 1 g 0
29 #REF! 1 r 0.065
30 #REF! 1 T 1
31 #REF! 1 1/1+r 0.94
32 #REF! 1 power 1 0.94
33 #REF! 1 PV 5,189
34 #REF! 1
35 #REF! 1 Component 3: Study Expenses
36 #REF! 1 C 78,200
37 #REF! 1 g 0
38 #REF! 1 r 0.065
T 1
T 1
1/1+r 0.94
power 1 0.94
PV 73,508

CALCULATION OF NPV
1,132,379
5,189
(73,508)
NPV 1,064,060
Breakup of Study Expenses
Tution 75,000
Books 4,200
Insurance 3,000
Room Expenses -4,000

Total 78,200
 Present Job IBA Hailey
PV (Inflows)
PV (Outflows)
NPV 805,819 1,106,164 1,064,060
PV 805,819.00
g 0.03
r 0.065
T 38
1+r 1.065
power 38 10.95

FV 8,821,097
K&K
C 53,000.00 0.74 39,220
g 0.03
r 0.065
T 38
r-g 0.035
1+g/1+r 0.97
power 38 0.28
1-power38 0.72 IBA PU OPTION
PV 805,819.1 C
g
PV 39,220*0.72/0.035 r
PV C*0.72/0.035 T
r-g
1+g/1+r
power 36
1-power 36
PV
Discount Factor for 2 years
PV

OUR GOAL PV(K&K) = PV(PU MBA)

C*0.72/0.035 = 1,214,541.00
C = 59,040.19
 Confirmation of Solution
C 80,027.03 0.74 59,220
g 0.03
r 0.065
T 38.00
r-g 0.04
1+g/1+r 0.97
power 38 0.28
1-power38 0.72
PV 1,216,742

IBA PU OPTION
87,000 0.69 60,030 Present Salary
0.04
0.065 805819
36
0.025
0.98
0.43
1-power 36 0.57
1,380,160
Discount Factor for 2 years 0.88
1,214,541
Borrowing will make the decision easier in favor of doing MBA as the discounting rate is more than the borrowing rate. The av
an the borrowing rate. The available cash will generate income at higher rate and he has to pay lower interest on the borrowed amount m
st on the borrowed amount making the financial proposition more attractive to take an MBA.