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This year, the annual tuition at a public four-year university is $5,290. Next year when Jarrod attends his first year, the tuition is expected to increase 4.5%. Jarrod has 1 year to save the amount of money equal to the tuition for his first year. What is the approximate minimum amount Jarrod should save monthly? $441 $461 $553 $639

 

 

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THE MBA DECISION Ben Bates graduated from college six years ago with a finance undergraduate degree. Since graduation, he has been employed in the finance department at East Coast Yachts. 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. Other than internships, neither school will allow its students to work while enrolled in its MBA program. Ben's annual salary at East Coast Yachts is $53,000 per year, and his salary is expected to increase at 3 percent per year until retirement. 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 Ritter College of Business at Wilton 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 $2,500 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $100,000 per year, with a $15,000 signing bonus. 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 of Business at Mount Perry College began its MBA program 16 years ago. The Bradley School is smaller and less well known than the Ritter College. Bradley offers an accelerated, one-year program, with a tuition cost of $71,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $3,500. Ben thinks that after graduation from Mount Perry, he will receive an offer of $88,000 per year, with a $12,000 signing bonus. The salary at this job will increase at 3.5 percent per year. His average income tax rate at this level of income will be 29 percent. Both schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Ben also estimates that room and board expenses will cost $2,000 more per year at both schools than his current expenses, payable at the beginning of each year. The appropriate discount rate is 6.5 percent. Assume all salaries are paid at the end of each year. 1. How does Ben's age affect his decision to get an MBA? 2. What other, perhaps nonquantifiable factors, affect Ben's decision to get an MBA? 3. Assuming all salaries are paid at the end of each year, what is the best option for Ben—from a strictly financial standpoint? 4. In choosing between the two schools, Ben believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement? 5. What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position? Assume his tax rate after graduating from Wilton University will be 31 percent regardless of his income level. 6. Suppose that instead of being able to pay cash for his MBA, Ben must borrow the money. The current borrowing rate is 5.4 percent. How would this affect his decision to get an MBA?


A father is now planning a savings program to put his daughterthrough college. she is 13 and she plans to enroll at theuniversity in 5 years, and she should graduate in 4 years.Currently the annual cost for everything (food, clothing tuition,books, transportation ,and so forth) is $15,000, but these costsare expected to increase by 5% annually. the college requires thatthis amount be paid at the start of the year. she now has $7,500 ina college savings account that pays 6% annually. her father willmake 6 equal annual deposits into her account, the first deposittoday and the 6th deposit on the day she starts college. How largemust each of the 6 payments be? [Hint: calculate the cost (inflated5%) for each year of college and find the total present value ofthose costs, discounted at 6%, as of the day she enters college.Then find the compounded value of her initial $7,500 on that sameday. The difference between the present value costs and the amountthat would be in the savings account must be made up by the fathersdeposits so find the 6 equal payments (starting immediately)thatwill compound to the required amount]

Richard Petri is chief financial officer at ComputerElectronics, Inc. In this capacity, he attends all monthly board ofdirectors meetings. A special meeting of the board of directors wascalled to discuss substantially increasing the amount of cashdividends paid to stockholders this year. The board votedunanimously to increase the dividend. Later that night, Richardcalled his uncle and hinted around that Computer Electronics, Inc.,was going to make its stockholders very happy. His uncle didn't ownany stock in Computer Electronics but went out and purchased 500shares the next day.

1. Did Richard do anything unethical?

2. What should Richard's boss do if he finds out what Richardsaid to his uncle?

3. What are the possible reasons a corporation might want to paya very low or high dividend in any given year?

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