Changing business environment demands for higher qualification especially in finance and in business. Every business entity is having separate finance department which handles all the financial transactions and requirements of the company. This clearly discloses about the great opportunity available in the finance industry and motivates for higher studies in finance and in business administration. Finance is my field of interest and I wanted to pursue my career in this sector. In order to achieve my goal I will pursue MBA specializing in Finance, which is most popular among other degrees in this segment. Thus, MBA will be the chosen profession degree.
Cost analysis of MBA degree:
Cost of ...view middle of the document...
One important thing to be remembered is that tuition cost must not encompass other charges associated with earning a MBA degree. Apart from the tuition and admission cost, student has to consider cost of laptops, books supplies and also the boarding expenses. Generally, these costs tend to increase with time, that is cost in year 2 will be higher than Year 1 cost and can leave behind higher amount of debt than expectation.
Next is to considering the living expenses:
Rent $ 700 per month
Groceries $ 200 per month
Utilities $ 500 per month
Phone $ 100 per month
Sundry $100 per month
Total cost $1,600 per month
Total cost for 2 years $38,400 ($1,600*12*2)
Living costs expenses has to be included along with the overall costs determined in the previous section ($206,000). Thus, total costs will be $244,400 ($206,000+$38,400). Thus, one can obtain the MBA degree at cost of $244,400.
Determination of return:
Determining the return on investment is essential, for this purpose average salary of a MBA should be considered. The average salary of MBA finance is $80,000 per year excluding bonus. The salary is expected to increase by 10% per year and the joining allowance is being provided at the time of joining is $20,000. This will be incurred in the year 2 end. Let us use the discount rate as 5% for discounting the cash flow. The determined expenses are for two years and it is assumed to remain equal in each period. For calculation purposes let us consider the amount of $20,000 will be received at the end of Year 2.
Year Cash outflow Cash inflow Present value
0 $(122,200.00) - $(122,200.00)
1 $(122,200.00) - $(116,380.95)
2 $100,000.00 $90,702.95
3 $ 98,000.00 $84,656.08
4 108,800.00 $89,510.03
5 121,480.00 $95,182.76
6 132,128.00 $98,595.95
In the above table cash inflow is determined as:
Year 2 = $80,000+$20,000 = $100,000
Year 3 = $80,000*(1.10) +$10,000(bonus) = $98,000
Year 4 = $88,000*1.10 +$12,000 = $108,800
Year 5 = $96,800*1.10 +$15,000 = $121,480.00
Year 6 = $106,480 *1.10 +$15,000 = $132,128.00
In this case, it is assumed that bonus will be paid only after one year of service that is the reason for adding the amount of bonus from Year 2.
All the values are discounted to year 0 using the 5% discount rate.
From the above calculation it is clear that the payback period will be as follows:
Remaining loan amount = $(122,200.00) + $(116,380.95) +$90,702.95 +$84,656.08