MBA or not to MBA?

That is the question Investigating the Value of an MBA Education using NPV Decision Model
W5491: Math for Finance X410.21 (Summer 2011-UCLA Extension ) Prof. Nicholas Nucho

Ashwin Shah

Mehnaz Alam
Nabil Quadri

Agenda
Background Our Approach Schools

Loans
Introducing the Candidates Our NPV Model in Action WaitHow did that all work? Pushing the Boundaries

Conclusion
2

Background

Image source: flickr.com

MBA = Master of Business Administration

Core curriculum: Accounting, Communications, Economics, Finance

HR, Marketing and Strategy.

Pros:

Potential to accelerate careers across various industries MBA graduates usually command higher salaries Opportunity to change careers Exposure to different networks

Cons

4

Expensive Risk of not increasing salary post MBA Time Commitment Strain on loved ones Loss of 2 years of income

Is an MBA worth it? The endless debate

A decision of this magnitude can be an overwhelming

and stressful process.

The goal of this project is to provide a useful and

objective method to evaluate this complex decision.

Image source: flickr.com

Our Approach

Overview
We recognize there are many components that factor into

making such an important decision.

For the purposes of this project, we decided to focus on the

financial aspect as a form of measurement.

Our approach was to build a model that will calculate the

NPV of this investment as a tool to guide potential MBA students.

7

Approach to Evaluation
Ultimately, this decision will vary based on an individuals

situation and potential.

To answer this question, we crafted 3 hypothetical candidate

profiles and accessed the profiles against a variety of MBA programs.

This allowed for a thorough and complete analysis of the

investment since each program leads to a different post-MBA income and income growth rate.

Our Process
Gathered detailed data about MBA programs, potential earnings,

loan programs and historical interest rates from reliable sources

variables including tuition and other expenses, loan rates and terms and pre- and post- MBA incomes

Created an elaborate NPV model to consider a number of

Ensured our model meets financial modeling best practices Carefully crafted candidate profiles to reflect varied career

situations

Merged NPV model with candidate profiles to provide a full

quantitative picture of the impact of decision paths

Schools

10

Reviewed 4 types of MBA Programs

Ivy League

Big Ten
Private Online

11

Sources of Profile Data

Bloomberg Business Week 2010 rankings used to order the schools

to implicitly depict variation of NPV 2010

Post-MBA incomes also taken from Bloomberg Business Week

Expenses data taken from respective B-School online sources (for

session starting fall of 2011)

Post-MBA income growth rates over 20-year horizon taken from

paper Estimating the Internal Rate of Return on an MBA, John B.White., Morgan P. Miles, and Roger M.White

12

International MBA Programs

Originally, we considered including non-US schools and programs

as part of the analysis

Difficulties in predicting and adjusting for:

Foreign currency exchange trends International discount rates International income growth rates

Not directly comparable with US-only scenarios So, for the purposes of this project, we did not include non-US

MBA programs

13

Loans

14

Loan Programs
We took 3 loan programs: one for each

Loan Type: Federal Subsidized Graduate Loan Federal Unsubsidized Graduate Loan Citibank Graduate Student Loan (Private)

All US loans specified with APR rate (Truth

in Lending Act of 1968)

Grace period is a standard 6 months after

graduation

Monthly repayment is standard

15

Image source: flickr.com

Introducing the Candidates

16

Candidate #1: Mr. Non Profit

Currently: 26 year old male

currently working as a marketing coordinator at a non-profit in Atlanta, GA

Pre-MBA Income:

$38,000 per year.

Image source: flickr.com

17

Candidate #2: Ms. Wall Street

Currently: 28 year old

female currently working as a Hedge Fund Research Analyst in NYC

Pre-MBA Income:

$85,000 per year

Image source: flickr.com

18

Candidate #3: Mr. IT

Currently: 25 year old male

currently working as Software Developer in San Diego, CA

Pre-MBA Income:

$65,000 per year.

Image source: flickr.com

19

Our NPV Model in Action

20

Candidate #1: Mr. Non Profit

21

NPV of MBA Investment by School-Mr. Non Profit

$1,400,000.00
$1,200,000.00 $1,000,000.00 $800,000.00 $600,000.00 $400,000.00 $200,000.00 Federal subsidized graduate Federal unsubsidized graduate Citibank

$0.00

Calculated using : Horizon of 30 years Discount rate of 5% Non MBA Income growth rate of 2%

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Federal Subsidized Graduate Loan-Mr. Non Profit

$1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.63 $1.36 $1.10 $1.01 $0.87

$0.92

$0.63
$0.39

$0.70

$0.30
Federal subsidized graduate

$0.20
$0.00
In millions

Calculated using : Horizon of 30 years Discount rate of 5% Non MBA Income growth rate of 2% Loan Interest Rate of 6.8% with maturity of 20 years

23

Federal Unsubsidized Graduate Loan-Mr. Non Profit

$1.60
$1.40 $1.20 $1.00 $1.34 $1.08 $0.99 $0.85 $0.61 $0.60 $0.40 $0.20 $0.38 $0.28 Federal unsubsidized graduate $0.90 $0.68

$0.80
$0.61

$0.00
In millions

Calculated using : Horizon of 30 years Discount rate of 5% Non MBA Income growth rate of 2% Loan Interest Rate of 6.8% with maturity of 20 years

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Citibank Private Loan-Mr. Non Profit

$1.40 $1.31

$1.20 $1.06 $1.00 $0.97 $0.83 $0.80 $0.66 $0.60 $0.59 $0.59 Citibank $0.35 $0.88

$0.40

$0.26
$0.20

$0.00
In millions

Harvard Business School

Kellogg School of Management

Columbia

Kelley School of Business

Yale

GeorgeTown Babson Olin Rocheter Arizona State McDonough Simon School Carey of Business

Univ of Phoenix

Calculated using : Horizon of 30 years Discount rate of 5% Non MBA Income growth rate of 2% Loan Interest Rate of 8.0% with maturity of 30 years

25

Candidate #2: Ms. Wall Street

26

NPV of MBA Investment by School-Ms. Wall Street

$400,000.00 $200,000.00 $$(200,000.00) $(400,000.00) Federal subsidized graduate $(600,000.00) $(800,000.00) Federal unsubsidized graduate Citibank

Calculated using : Horizon of 30 years Discount rate of 5% Non MBA Income growth rate of 2%

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Federal Subsidized Graduate Loan-Ms. Wall Street

$0.60 $0.39 $0.40 $0.20 $0.00 ($0.20) ($0.40) ($0.57) ($0.60) ($0.80) ($0.58) $0.13 $0.04 ($0.10) ($0.05) ($0.27)

($0.34)

($0.34)

Federal subsidized graduate

In millions

Calculated using : Horizon of 30 years Discount rate of 5% Non MBA Income growth rate of 2% Loan Interest Rate of 6.8% with maturity of 20 years

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Federal Unsubsidized Graduate Loan- Ms. Wall Street

$0.60 $0.40 $0.20 $0.00 ($0.20) ($0.36) ($0.40) ($0.60) ($0.60) ($0.80) ($0.60) $0.37

$0.11 $0.02 ($0.12) ($0.07) ($0.29)

($0.36)

Federal unsubsidized graduate

In millions

Calculated using : Horizon of 30 years Discount rate of 5% Non MBA Income growth rate of 2% Loan Interest Rate of 6.8% with maturity of 20 years

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Citibank Private Loan-Ms. Wall Street

$0.40 $0.33

$0.20 $0.07 $0.00 ($0.01) ($0.10) ($0.15) ($0.20) ($0.32) ($0.39) ($0.40) ($0.39) Citibank

($0.60)

($0.63)

($0.63)

($0.80) Harvard Business School Kellogg School of Management Columbia Kelley School of Business Yale GeorgeTown Babson Olin Rocheter Arizona State McDonough Simon School Carey of Business Univ of Phoenix

In millions

Calculated using : Horizon of 30 years Discount rate of 5% Non MBA Income growth rate of 2% Loan Interest Rate of 8.0% with maturity of 30 years

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Candidate #3: Mr. IT

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NPV of MBA Investment by School-Mr. IT

$800,000.00 $600,000.00 $400,000.00 $200,000.00 $Federal subsidized graduate Federal unsubsidized graduate Citibank

$(200,000.00)
$(400,000.00)

Calculated using : Horizon of 30 years Discount rate of 5% Non MBA Income growth rate of 2%

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Federal Subsidized Graduate Loan-Mr. IT

$1.00
$0.80

$0.80 $0.60
$0.40 $0.20 $0.00 $0.54 $0.45 $0.31 $0.37 $0.14

$0.07

$0.08

($0.16)
($0.20) ($0.40)

Federal subsidized graduate ($0.20)

In millions

Calculated using : Horizon of 30 years Discount rate of 5% Non MBA Income growth rate of 2% Loan Interest Rate of 6.8% with maturity of 20 years

33

Federal Unsubsidized Graduate Loan-Mr. IT

$1.00 $0.80 $0.60 $0.40 $0.20 $0.00 ($0.18) ($0.20) ($0.40) ($0.22) $0.78

$0.52 $0.43 $0.29 $0.34

$0.05

$0.05

$0.12

Federal unsubsidized graduate

In millions

Calculated using : Horizon of 30 years Discount rate of 5% Non MBA Income growth rate of 2% Loan Interest Rate of 6.8% with maturity of 20 years

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Citibank Private Loan-Mr. IT

$0.80
$0.75

$0.60 $0.49 $0.40 $0.40 $0.26 $0.20 $0.09 $0.02 $0.00 ($0.21) $0.02 Citibank $0.31

($0.20)

($0.25)

($0.40) Harvard Business School Kellogg School of Management Columbia Kelley School of Business Yale GeorgeTown Babson Olin Rocheter Arizona State McDonough Simon School Carey of Business Univ of Phoenix

In millions

Calculated using : Horizon of 30 years Discount rate of 5% Non MBA Income growth rate of 2% Loan Interest Rate of 8.0% with maturity of 30 years

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Waithow did that all work?

The NPV Model

36

Model Overview
Consists of 5 worksheets:
NPV Calculator: The main NPV calculation sheet School Profiles: List of MBA programs under analysis with associated

variables

Loan Profiles: List of loan programs under consideration with associated

parameters

Candidate Profiles: List of Candidates with associated variables NPV Iterator: Tool to apply the NPV model in one shot to various

combinations of Schools, Loans and Candidates

37

Consistent Color Coding Used

User Input Value Derived Input Value Alternative Input for Sensitivity Analysis

Sensitivity Analysis Output

Intermediate Output Value Output Value

38

NPV Calculator: Overview

Three main sections:
Profiles Selector Model Inputs Model Outputs

39

NPV Calculator: Profiles Selector

Used to select a desired combination of MBA Program, Loan

Program and Candidate (from drop-down)

Drop-down options are linked to respective Profile worksheet After selecting desired combination, click on Button to load all

associated input variables from each profile worksheet into NPV Calculator Input fields values of the input variables, which can then be changed manually in NPV Calculator

Selecting Custom retains earlier

40

NPV Calculator: Model Inputs

Divided into 4 sub-sections:
General Parameters (MBA parameters, Model Horizon,

Discount Rate)

Non-MBA Path (Income Variables) MBA Path (Income Variables)

MBA Expenses (Expenses and Loan Variables)

41

NPV Calculator: General Parameter Inputs

Length of MBA in Years School-related Input:

Can be loaded from School Profile Affects:

Beginning Principal Calculation Forfeited Pre-Income Calculation

Horizon in Years (starting from MBA graduation) Length of time into future over which all cash-flows are considered Constant Discount Rate (used in all PV calculations) We have assumed a standard rate of 5% and separately completed sensitivity analysis Full-time or Part-time MBA (flag selected from drop-down) School-related Input: Can be loaded from School Profile

42

NPV Calculator: Non-MBA Path Inputs (1/2)

Pre-MBA Annual Income
As of date of commencement of MBA
Exclusive of taxes (to remove the effect of variations in tax

rates: standard NPV practice) Candidate-related Input: Can be loaded from Candidate Profile
Non-MBA Income Growth Function
Can use constant income growth function or variable one: this

flag variable specifies which method to use For all current analysis, we have used Constant function and separately studied effect of using variable for one profile
43

NPV Calculator: Non-MBA Path Inputs (2/2)

Constant Annual Growth Rate of Non-MBA Income
Used if Constant Growth function is selected Assumed as 2% for all current candidate analysis When MBA is of fractional-year length (e.g. 1.5 years MBA

programs), the growth during the partial year is calculated by taking effective period growth rate (EAR formula applied to Constant Growth Rate)

Variable Annual Growth Rate of Non-MBA Income

Growth rate for each period up to horizon (including duration of

MBA) can be specified on timeline Using this it is possible to simulate various real-world scenarios such as Interim raises, Diminishing growth, Effect of sign-on bonuses, Career Stagnation, Change of Career Paths, Change to Self-Owned Business, etc.
44

NPV Calculator: MBA Path Inputs (1/2)

Estimated Post-MBA Annual Income
As of date of MBA graduation Exclusive of taxes (to remove the effect of variations in tax rates:

standard NPV practice) School-related Input: Can be loaded from School Profile. But note that the school profile gives average post-MBA income whereas actual post-MBA income would also vary based on the candidates experience and chosen career path
Post-MBA Income Growth Function
Can use constant income growth function or variable one: this flag

variable specifies which method to use For all current analysis, we have used Constant function and separately studied effect of using variable growth for one candidate
45

NPV Calculator: MBA Path Inputs (2/2)

Constant Annual Growth Rate of Post-MBA Income
Used if Constant Growth function is selected School-related Input: Can be loaded from School Profile[1]

Variable Annual Growth Rate of Post-MBA Income

Growth rate for each period up to horizon (starting from graduating

year) can be specified on timeline Using this it is possible to simulate various real-world scenarios such as Interim raises, Diminishing growth, Effect of sign-on bonuses, Career Stagnation, Change of Career Paths, Change to Self-Owned Business, etc.

[1] Estimating the Internal Rate of Return on an MBA: A Comparison of the Return from Top-Ranked & Second-Tier Programs, John B.White., Morgan P. Miles, and Roger M.White

46

NPV Calculator: MBA Expense Inputs (1/5)

Total Tuition, Living and Other Expenses
Expenses for full duration of MBA
School Profile gives break-up of expenses by type (Tuition,

Room and Board, Utilities, Health Services, Other Fees, Misc. Expenses). Model allows flexibility of not considering a specific type of expense (e.g. Room and Board need not be considered if the candidate is a local with own residence). Simple change in summation formula used on School profile sheet Total of all of the relevant expenses is loaded into this NPV Calculator to determine amounts to be borrowed or used up from savings
47

NPV Calculator: MBA Expense Inputs (2/5)

Total Approved Loan Amount
Candidate-related Input: Can be loaded from Candidate Profile
In practice: Candidates try to get the highest possible loan amount approved First approach is to obtain Federal loans as the interest rate is lower but these have a maximum approval limit Remaining funds borrowed from private lenders We have taken a slightly simplified approach for current analysis Only one loan assumed remaining amount must come from savings All standard approved loan limits ignored (even for federal loans) Extension to multiple loan framework explored separately &

developed as an add-on and the model continues to be refined

48

NPV Calculator: MBA Expense Inputs (3/5)

Upfront Payment of Tuition
Assumed to be from Savings and Interest-free Borrowings (e.g. from parents)
Derived Input : auto-calculated by NPV-Calculator
Upfront Payment = Total MBA Expenses Total Approved Loan Amount

Loan Interest Rate per Year

Loan-related Input: Can be loaded from Loan Profile Affects calculation of beginning principal for amortization and determination

of the amortized payments

Rate Convention (flag input selected from drop-down)

Indicates whether the annual interest rate is specified in EAR or APR terms

affects derivation of period interest rate from annual interest rate Loan-related Input: Can be loaded from Loan Profile
49

NPV Calculator: MBA Expense Inputs (4/5)

Grace Period in Years
Specifies the duration after graduation during which the candidate is

excused from making loan payments Loan is amortized starting from date of expiry of grace period Loan-related Input: Can be loaded from Loan Profile
Loan Maturity (in years)

Length of time over which loan is amortized Loan-related Input: Can be loaded from Loan Profile. In practice, for

private loans, loan maturity can vary quite a bit. Since model allows for custom inputs, this is easily handled.

Number of Payments per Year

Loan-related Input: Can be loaded from Loan Profile Affects amortization schedule, period interest rate and PV of periodic loan

payments

50

NPV Calculator: MBA Expense Inputs (5/5)

Loan type (input selected from Drop-down)
Specifies whether the loan is subsidized, unsubsidized or from a private

institution Loan-related Input: Can be loaded from Loan Profile Affects the calculation of the actual beginning principal amount:

For subsidized loans, the compound interest waived off the duration of the MBA.
In case for unsubsidized or private loan, beginning principle balance is equal to

approved loan amount plus the compound interest accrued over duration of MBA. All loan payments are assumed to be deferred till graduation (reflects majority of realworld scenarios)

Period Interest Rate: Derived Input - Calculated from Annual Interest

Rate using APR or EAR formula depending on Rate Convention Beginning Principal Balance: Derived Input Calculated from Approved Loan Amount using period interest rate, duration of MBA & grace period applied to basic compound interest formula
51

NPV Calculator: Model Outputs

Ultimate objective is to calculate NPV of doing MBA given the values of all the

input variables

First model calculates PVs of the various cash flows involved: Present Value of Loan Repayments (PVLoan-payments): up to loan maturity Present Value of Post-MBA Income (PVPost-MBA): projected from graduation to model horizon Present Value of Projected Non-MBA Income (PVNon-MBA) : projected from start of MBA to model horizon Present Value of Income forfeited during MBA (PVDuring-MBA)
Then PVs are combined to give NPV of MBA
For full-time MBA programs

NPVMBA = PVPost-MBA Upfront Expense PVLoan-payment PVNon-MBA

For part-time MBA programs

NPVMBA = PVPost-MBA Upfront Exp. PVLoan-payment PVNon-MBA + PVDuring-MBA

52

NPV Calculator: PVLoan-payments (1/2)

First, amortized loan payment amounts (L-PMT) are calculated

using Excel PMT function

Rate used = Period Interest Rate No. of Periods = Total Payment Periods (Loan Maturity * No. of Payments

per Year) PV = Beginning Principal Balance

Then, the value of all loan payment amounts as of the date of

commencement of loan repayments (FVL-PMT)is calculated using Excel PV function

Rate used = Effective discount rate for each loan period (calculated from

Constant Discount Rate and No. of Payments per Year using EAR formula) No. of Periods = Total Payment Periods (Loan Maturity * No. of Payments per Year) Annuity Amount = Amortized Loan Payment Amount (L-PMT)
53

NPV Calculator: PVLoan-payments (2/2)

Next, the Present Value of all loan payment amounts as

of date of commencement of MBA is calculated using Excel PV function

Rate used = Constant Discount Rate No. of Periods = Duration of MBA + Grace Period Annuity Amount = 0 Future Value = FVL-PMT

Two-step process used here is equivalent to calculating PV of

all loan repayments in a single-step using raw PV formula

54

NPV Calculator: PVPost-MBA

Present value of post-MBA income is calculated using

time-line approach
First-year income is projected on an annual basis from

graduation to the model horizon Growth rates used are the effective growth rates for each period (Constant or Variable depending on Post-MBA inputs) Present value of each years income calculated using Excel PV formula
Rate = Constant Discount Rate No. of Periods = Duration of MBA + Years after graduation

Future Value = Annual Post-MBA Income for that year

55

NPV Calculator: PVPre-MBA

Present value of lost income of non-MBA decision path is

calculated using time-line approach

Pre-MBA Income as of the date of starting the MBA is taken as the

starting point for income projection This income is projected on an annual basis from the date of starting the MBA to the model horizon so the timeline of Non-MBA path is longer than Post-MBA path by the length of the MBA Growth rates used are the effective growth rates for each period (Constant or Variable depending on Non-MBA inputs) Present value of each years income calculated using Excel PV formula
Rate = Constant Discount Rate

No. of Periods = Years after start of MBA

Future Value = Annual Non-MBA Income for that year
56

NPV Calculator: PVDuring-MBA

Need for considering PVDuring-MBA for part-time MBAs: In PV calculation of non-MBA path, projected income is taken from date of starting the MBA i.e. projected income during MBA course is taken as lost income In part-time MBA, candidate continues to earn (growing) pre-MBA salary over the duration of MBA So, income earned during MBA must be added back to NPV of fulltime MBA decision path to get NPV of part-time MBA path NPVPart-time-MBA = PVFull-time-MBA + PVDuring-MBA Handled by conditional addition of PVDuring-MBA in NPV cell

formula. Condition is simple check of Part-time/Full-time flag specified in General Parameter Inputs section

57

Profile Worksheets
School Profiles: Define each MBA program along with:

Ranking Expense breakup Average historical income after graduation Estimated constant annual income growth rate

Loan Profiles: Define each available loan program with

applicable rate, payment term, maturity and type

Candidate Profiles: Define each candidate with pre-MBA

annual income and total approved loan amount

58

NPV Iterator: Calculate in Bulk

Useful to setup multiple combinations of candidates, MBA

programs and loan programs and calculate their NPVs at the click of a button
Enter name of candidate/B-school/loan-program exactly as

given in respective Profiles worksheet Enter an interest rate and loan maturity period to override defaults associated with loan program Enter starting and ending rows for iterator (allows you to enter all data but calculate NPV only for some)

59

Pushing the Boundaries

Going above and beyond

60

Discount Sensitivity Analysis 1

NPV as function of MBA Program and Discount Rate
NPV (in USD)
$2,000,000.00 $1,500,000.00 $1,000,000.00 1% 3% 5% $500,000.00 $0.00

7%
9%

-$500,000.00 -$1,000,000.00

61

Candidate Profile Model Horizon Loan Program Interest Rate Loan Maturity Non-MBA Income Growth Rate

Mr. IT 30 years Citibank 8% 30 years 2%

Discount Sensitivity Analysis 2

NPV as function of Candidate Profile and Discount Rate
$2,500,000.00 $2,000,000.00

$1,500,000.00

NPV (in USD)

$1,000,000.00

$500,000.00

$0.00 0% -$500,000.00 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% MBA Program Columbia Model Horizon 30 years Loan Program Citibank Interest Rate 8% Loan Maturity 30 years Non-MBA Income Growth Rate 2%

Discount Rate
Mr. Non-Profit Ms. Wall Street Mr. IT

62

Growth Function: Practical Utility

In candidate analysis we took a constant rate of growth of

both pre-MBA and post-MBA incomes Simpler to conceptualize Real data for various programs available from previous studies Gives a career-path agnostic NPV estimate
More realistic and practical NPV decision analysis can be

done using Variable Growth Function feature of NPV model (natively supported)
63

Growth Function: Using It

To use feature, select Variable in the Post-MBA Income

Growth Function drop-down

Enter growth rate applicable to each year in the row

labeled Variable Annual Growth Rate of Post-MBA Income

64

Growth Function Analysis

In the interest of exploratory analysis, we assumed a

number of realistic career paths and imagined hypothetical post-MBA growth functions for each of these
For simplicity non-MBA income path was still assumed to

be growing at constant rate of 2%. Only post-MBA varied.

Candidate Profile Model Horizon Mr. IT 20 years Citibank 8% 10 years 2% 5%

Fixed Variables:

Loan Program Interest Rate Loan Maturity Non-MBA Income Growth Rate Discount Rate

65

Hypothesized Growth Functions

Scenario Constant Growth Function Flat 3.5% growth. Simplifying Approximation

Career Consultant

1st year growth: 3% (sign-on bonus effect) Years 2-5: 4% (initial spurt) Years 6-13: 3% (plateau: middle management) Years 14-20: 7% (partnership: revenue share)
Starting with a rate of 7%, the growth itself decelerates @ 10% per year with a terminal value of 1.2% Constant rate of 2.5% except once every 5 years when candidate switches jobs and gets a one-time boost of 10% due to signing bonus and switching raise Constant salary growth of 2.5% for first 8 years. Then candidate starts a new company (0% for 4 years). Once enterprise takes off, personal income growth shoots up to 15% per year

Law of Diminishing Returns

Job Hopper

I Have a Dream

66

Growth Functions Visualized

Post-MBA Income Growth Functions Used For Exploratory Analysis of Hypothetical Career Paths
16.00% 14.00% 12.00% Constant 10.00% Career Consultant 8.00% 6.00% 4.00% 2.00% 0.00% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Law of Diminishing Returns Job Hopper I Have a Dream

67

Growth Function Analysis Findings

Impact on NPV of MBA by Varying Post-MBA Income Growth Function
$600,000.00
$500,000.00 $400,000.00 $300,000.00 $200,000.00 $100,000.00 $0.00 -$100,000.00 -$200,000.00

Constant

Career Consultant

Law of Diminishing Returns

Job Hopper

I Have a Dream

68

Ability to add one more loan program

Conclusion

70

Applied to our candidates

Applying the NPV model to our 3 hypothetical candidates,

we can see that pursuing an MBA is a smart financial decision for Mr. Non Profit and Mr. IT.

However, an MBA will not provide a good return on

investment for Ms. Wall Street, from a strictly financial standpoint.

71

Takeaways
The NPV model can effectively provide a useful way of

evaluating the decision of whether to proceed with an MBA and where to apply purely in a financial perspective taking into consideration various market factors such as loan programs, interest rates etc.

The NPV model does not take into consideration intangibles

such as the potential of building a professional network, building on various skills such as entrepreneurship, leadership and team-building.
72