Assignment Task:
Myza graduated from college eleven years ago with a accounting & finance undergraduate degree. Although she is satisfied with her current job, her goal is to become an investment banker. She feels that an MBA degree would allow her to achieve this goal. After examining schools, she has narrowed her choice to either Universiti institute Teknologi of Mara or Universiti Utara Malaysia. 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.
Myza currently works at the law firm of Naziman & Co. Her annual salary at the firm is RM63,000 per year, and her salary is expected to increase at 3 percent per year until retirement. She is currently 30 years old and expects to work for 25 more years. His current job includes a fully paid health insurance plan, and her current average tax rate is 26 percent. Myza has a savings account with enough money to cover the entire cost of his MBA program.
The College of Business at Universiti Utara Malaysia is one of the top MBA programs in the country. The MBA degree requires two years of full-time enrolment at the university. The annual tuition is RM80,000, payable at the beginning of each school year. Books and other supplies are estimated to cost RM2,680 per year. Myza expects that after graduation from UUM, she will receive a job offer for about RM91,500 per year, with a RM15,000 signing bonus. The salary at this job will increase at 3.5 percent per year. Because of the higher salary, her average income tax rate will increase to 31 percent.
The School of Business at Universiti institute Teknologi of Mara began its MBA program 16 years ago. The school of Business at UiTM is smaller and less well known than UUM. UiTM offers an accelerated one-year program, with a tuition cost of RM74,500 to be paid upon matriculation. Books and other supplies for the program are expected to cost RM5,300. Myza thinks that she will receive an offer of RM75,500 per year upon graduation, with an RM9,300 signing bonus. The salary at this job will increase at 3.6 percent per year. Her average tax rate at this level of income will be 29 percent.
Both schools offer a health insurance plan that will cost RM3,000 per year, payable at the beginning of the year. Myza has also found that both schools offer graduate housing. Her room and board expenses will decrease by RM4,000 per year at either school she attends. The appropriate discount rate is 5.5 percent.
Questions:
Q1. Assuming all salaries are paid at the end of each year, what is the best option for Ben from a strictly financial standpoint?
Q2. What initial salary would Myza need to receive to make her indifferent between attending Universiti Utara Malaysia and staying in her current position?
Q3. Suppose, instead of being able to pay cash for her MBA, Myza must borrow the money. The current borrowing rate is 4.3 percent. How would this affect her decision?