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. 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.

(a) How should your friend formulate her problem?

Step 1: Decide whether or not to invest in an MBA program. She should consider
the pros and cons.
• Pros: a higher income
• Cons: unsure of getting her dream job
Step 2: Identify the problem, the risk she takes on a large loan to finance the
MBA, but she is not sure she can find a job afterward that she can use to pay it
off.

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

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

First Option. Work first before applying for the degree. She should earn money first to
reduce her loan amount and interest cost. Thus, postponing the degree might take her to
finish her degree longer.

Second Option. Find an MBA program that allows her to work part-time jobs. She can earn
money to pay her debt and save money for education, but her attention will be divided
since she is working while studying. She will be unfocused, which might affect her
performance in the future.
Third Option. Find an MBA program that offers a lower-cost degree. This will reduce the
direct and indirect costs and can also reduce the debt amount. Thus, the disadvantage
would be the expected income after she completes her MBA is lower.

Fourth Option. Not to do MBA. She will not have any cost, but her income will not increase.

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

Criterion: minimize risk

Option: first or fourth as they involve less risk

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

The first option has the lowest risk of helping her pursue the degree; thus, taking on any
debt without a guaranteed job at the end of the MBA would be ruled out. Therefore,
option four may be her only option.

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

To avoid uncertainty on employment, she should have an idea on the state of job market that is in
demand in the country. She must also look for MBA programs that are particularly recruiting for
members so that it will be easier for her to enter at any MBA programs. Lastly, she must look for a job
that is aligned with the degree she wants to pursue so that when she is already ready to take any MBA
program, it will be easier for her to study since she has a background about the degree.

To reduce uncertainty regarding employment, she should: – Gather information on the state of the job
market in both the geographical area and the sector – Find out which MBA programs are particularly
strong at driving recruitment – Try to negotiate a job with a desired employer before starting the MBA
program