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Fundamentals of corporate finance chapter 6 the mba decision solution 9th edition

Corporate finance 9e chapter 6 Fundamentals of Corporate Finance

Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an investment banker.

He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid.

Fundamentals of corporate finance chapter 6 the mba decision solution 9th edition

Other than internships, neither school will allow its students to work while enrolled in its MBA program. Ben currently works at the money management firm of Dewey and Louis. He is currently 28 years old and expects to work for 40 more years.

His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Ben has a savings account with enough money to cover the entire cost of his MBA program. The MBA degree requires two years of full-time enrollment at the university.

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 31 percent. The Bradley School is smaller and less well known than the Ritter College. The salary at this job will increase at 3. His average tax rate at this level of income will be 29 percent.

Corporate finance 9e chapter 6

The appropriate discount rate is 6. Assuming all salaries are paid at the end of each year, what is the best option for Ben—from a strictly financial standpoint? Ben believes that the appropriate analysis is to calculate the future value of each option.

How would you evaluate this statement? What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position?

Suppose, instead of being able to pay cash for his MBA, Ben must borrow the money.

The current borrowing rate is 5. How would this affect his decision?