Investment banker

Questions 1.How does Raj’s age affect his decision to get an MBA?

MINI CASEThe MBA DecisionRaj Danielson graduated from university six years ago with a finance undergraduate degree. Although heis satisfied with his current job, his goal is to become an investment banker. He feels that an MBAdegree would allow him to achieve this goal. After examining schools, he has narrowed his choice toeither Assiniboine University or the University of Passy. Both schools encourage internships, but to getclass credit for the internship, no salary can be accepted. Other than internships, neither school allowsits students to work while enrolled in its MBA program.Raj currently works at the money management firm of Prash and Sid. His annual salary at the firm is$53,000 and his salary is expected to increase at 3% per year until retirement. He is currently 28 yearsold 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%. Raj has a savings account with enough money to cover theentire cost of his MBA program.The Sentinel School of Business at Assiniboine 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$58,000, payable at the beginning of each school year. Books and other supplies are estimated to cost$2,000 per year. Raj expects that after graduation from Assiniboine, he will receive a job offer for about$87,000 per year, with a $10,000 signing bonus. The salary at this job will increase at 4% per year.Because of the higher salary, his average income tax rate will increase to 31%.The Pond School of Business at the University of Passy began its MBA program 16 years ago. The PondSchool is smaller and less well known than the Sentinel School. It offers an accelerated one-yearprogram, with a tuition cost of $75,000 to be paid upon matriculation. Books and other supplies for theprogram are expected to cost $4,200. Raj thinks that he will receive an offer of $78,000 per year upongraduation, with an $8,000 signing bonus. The salary at this job will increase at 3.5% per year. Hisaverage tax rate at this level of income will be 29%.Both schools offer an extended health insurance plan that will cost $3,000 per year, payable at thebeginning of the year. Raj also estimates that room and board expenses will decrease by $4,000 peryear at both schools. The appropriate discount rate is 6.5%.