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# The True Value of YOUR MBA

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Current Student
Joined: 27 Jul 2007
Posts: 872
Location: Sunny So Cal
Schools: CBS, Cornell, Duke, Ross, Darden
Followers: 12

Kudos [?]: 195 [88] , given: 4

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20 May 2008, 16:37
88
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15
This post was
BOOKMARKED
So I’ve had a little downtime over the last few days in the office and was thinking about my cost of earning an MBA. This mini-analysis ended up taking on a life of its own and it turned into a pretty sophisticated look at figuring out what am I giving up and how long (and how much) it is going to take to pay off. I realize that $is not the (only) reason that people go to b-school, but it's definitely an important factor. As a very analytical person, I thought it was important to dig deep on this topic. I have put together what I think is a comprehensive MBA return on investment (ROI) tool/model (more specifically, I used net present value, NPV). It looks at the MBA and non-MBA career paths and identifies not only when you’ll “breakeven” but also how your compensation will look over an extended period of time. I believe there are some other tools available online, but I don’t think that any of them offer much flexibility and are way to simplistic for a very important and complicated decision. Since I’ve gained so much from gmatclub, I wanted to share this tool so that my fellow g-clubbers can tailor it based on personalized life plans. For example, some people want to go into i-banking. This particular job function has a pretty unique compensation path. Moreover, most people that (want to) go into banking, only do so for a few years before jumping to investment management or private equity or some other excursion. Therefore, it wouldn’t make sense to say, “My compensation is going to be$350k for the next 12 years.” Other folks want to go into marketing, consulting, operations, strategy, etc. - areas that have different compensation tracks than investment banking. This tool is designed for any person starting with/transitioning to any career path.

I realize this may not be perfect, but I think it will be very informative regardless of your interests. This should help you whether you’re considering an elite vs. a trans-elite or a tier-two school vs. a regional program. It will also be helpful for those that are deciding between a part-time or full-time program. This will also help high-income earners that are deciding whether to go back to school at all. Ultimately, I wanted to create something that is user friendly and allows for almost an unlimited number of scenarios. If you have any questions, feel free to ask. Enjoy and let me know what you think.

Cheers,
ryguy

EDIT - Version 2.0 Available Now!

I made a handful of changes since I created this model last summer, but below are the two major changes that I have made:

1) Updated fields to incorporate internship earnings

2) Ability to easily compare a part-time v. full-time MBA program (from a financial perspective)

A couple of comments and feedback that were suggested from last time that I did not specifically address (and my reasons for choosing not to do so).

1) Debt service of student loans. So here’s the deal. This model assumes that tuition is paid upfront (i.e., during school). This is unrealistic for the vast majority of folks on the board here, and probably most students in general. However, I prefer to take a highly conservative approach when it comes to figuring out when I will break even. I suppose this is a worst-case scenario (i.e., makes the payback period look longer than it should), but in my mind, I’d rather err on the side of a longer payback period than a shorter payback period.

So why does this matter when tuition is paid? It is more expensive to pay for tuition with today’s dollars than it is X years down the road. For instance, if you are on a 10-yr repayment plan paying $600 a month -$600 in today’s terms is a lot more money than it is 5, 6, or 7 years from now (and for simplicity’s sake, let’s ignore fluctuations in the value of the US dollar). If you don’t believe me, ask yourself this: Would you rather I gave you $600 today or$600 in 6 years from now. Good, I’m glad we’re on the same page. For more detail on this, I explain this in general assumption #3 on the Instructions worksheet. In that section, I’ve also included instructions for a scenario that could be applicable for folks that go into investment banking, private equity, or any other very high paying post-MBA job.

2) Taxes. I received some comments saying that tuition is paid with after-tax dollars, but salary is listed in before tax dollars. Sure, fair enough. If you think that it is appropriate to adjust for this, multiple your salary by (1 minus your expected tax rate) and plug that in for your post-grad salary. I chose not to do this for the base case scenario, but again, I’ve tried to make this model flexible enough where you can put in whatever assumptions YOU think are appropriate.

Updated directions are included on the first worksheet of the excel file. Let me know if you have any questions. I’ll be happy to address any issues/comments that may be related to your particular circumstances. Also, if you think there are any improvements that could be made to this for future versions, I’ll see what I can do to incorporate them. And again, I'm human, so if you find any errors, let me know and I'll correct them. Enjoy and let me know what you think.
Attachments

File comment: Value of an MBA v2.0
Value of an MBA v2.0.xls [70 KiB]

File comment: Value of an MBA
Value of an MBA.xls [62 KiB]

_________________

The True Value of YOUR MBA: 103-t64239
GMATClub's Unofficial Chartered Financial Analyst thread: 103-t63245
How Much Weight Does the CFA Carry with Admissions: 103-t68059

Director
Joined: 20 Feb 2008
Posts: 797
Location: Texas
Schools: Kellogg Class of 2011
Followers: 6

Kudos [?]: 146 [0], given: 9

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20 May 2008, 17:39
It's amazing how soon the breakeven year is if you get into i-banking. I think mine is 2-2.5 years out or so vs. not getting an MBA and staying in my current non banking career.

+2 for you.
Current Student
Joined: 17 Jan 2008
Posts: 586
Location: Ann Arbor, MI
Schools: Ross '12 (MBA/MS)
Followers: 1

Kudos [?]: 100 [0], given: 34

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20 May 2008, 18:38
That's pretty neat. Thanks for sharing!
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SVP
Joined: 11 Mar 2008
Posts: 1634
Location: Southern California
Schools: Chicago (dinged), Tuck (November), Columbia (RD)
Followers: 8

Kudos [?]: 197 [0], given: 0

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20 May 2008, 19:10
Impressive indeed - Thank you sir
_________________

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GMAT Club Legend
Affiliations: HHonors Diamond, BGS Honor Society
Joined: 05 Apr 2006
Posts: 5926
Schools: Chicago (Booth) - Class of 2009
GMAT 1: 730 Q45 V45
Followers: 293

Kudos [?]: 1901 [1] , given: 7

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20 May 2008, 20:18
1
KUDOS
You belong in an MBA program.
Senior Manager
Joined: 05 Feb 2008
Posts: 322
Location: Texas
Followers: 2

Kudos [?]: 59 [0], given: 10

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20 May 2008, 20:23

This will help me out in the near future, kudos!
Manager
Joined: 01 Dec 2007
Posts: 198
Followers: 2

Kudos [?]: 12 [0], given: 0

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20 May 2008, 22:51
Director
Joined: 14 Sep 2007
Posts: 908
Schools: Kellogg '10
Followers: 6

Kudos [?]: 89 [0], given: 15

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21 May 2008, 06:41
As I suspected...lower NPV for getting an MBA.
_________________
Manager
Joined: 24 Jan 2006
Posts: 230
Location: India
Concentration: Finance, Entrepreneurship
WE: General Management (Manufacturing)
Followers: 2

Kudos [?]: 13 [0], given: 15

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21 May 2008, 07:30
_________________

Eat like a Pig, Lift like a Demon & Sleep like Dead.............

Manager
Joined: 13 Mar 2008
Posts: 85
Followers: 1

Kudos [?]: 14 [0], given: 0

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21 May 2008, 07:37
Great stuff! +1
Director
Joined: 08 Feb 2007
Posts: 610
Location: New Haven, CT
Followers: 5

Kudos [?]: 17 [0], given: 0

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21 May 2008, 14:00
This is one of the most valuable posts i have seen on GMATclub...kudos.
_________________

Lanter 1

"Lunch is for wimps."

Senior Manager
Joined: 23 Jan 2008
Posts: 498
Followers: 1

Kudos [?]: 52 [0], given: 0

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21 May 2008, 14:03
nice.
Intern
Joined: 09 Nov 2007
Posts: 18
Followers: 0

Kudos [?]: 1 [0], given: 0

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21 May 2008, 16:38
Great stuff man. Now that I looked at the numbers, I am rethinking whether going for the MBA is a good move or not.

What would you guys pick: MBA from Ross/Tauber institute with $0 Scholarship or$170K/year salary in bay area with loads of stock options?
Senior Manager
Joined: 05 Feb 2008
Posts: 322
Location: Texas
Followers: 2

Kudos [?]: 59 [0], given: 10

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21 May 2008, 16:54
sensation wrote:
Great stuff man. Now that I looked at the numbers, I am rethinking whether going for the MBA is a good move or not.

What would you guys pick: MBA from Ross/Tauber institute with $0 Scholarship or$170K/year salary in bay area with loads of stock options?

For me, an MBA is a set goal of mine, so to simply make a pick between the two without further information would be incorrect. If I was you, I would make a list of pros and cons, then decide which side it favors.
Intern
Joined: 05 Oct 2006
Posts: 43
Followers: 0

Kudos [?]: 4 [0], given: 0

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21 May 2008, 17:03
sensation, i was in the same boat as you. roughly 160k/yr and stock grants that would have been vested in a year and a half. i ultimately decided that i want a mba.

it really is a matter of want. how badly do you want a masters degree, and pursue higher education. do your homework in realizing what a mba can and can not provide you.
Current Student
Joined: 07 Aug 2007
Posts: 1062
Followers: 4

Kudos [?]: 31 [0], given: 0

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21 May 2008, 18:57
Absolutely great spreadsheet Ryguy! Kudos coming your way. Just had a question - if I had to include my internship $'s in this sheet, is there a "right" place to do so? Thanks again! Current Student Joined: 27 Jul 2007 Posts: 872 Location: Sunny So Cal Schools: CBS, Cornell, Duke, Ross, Darden Followers: 12 Kudos [?]: 195 [1] , given: 4 Re: The True Value of YOUR MBA [#permalink] ### Show Tags 21 May 2008, 21:27 1 This post received KUDOS dosa_don wrote: Absolutely great spreadsheet Ryguy! Kudos coming your way. Just had a question - if I had to include my internship$'s in this sheet, is there a "right" place to do so?

Thanks again!

DD-
Thanks for the kind words! I totally forgot about the internship! I'll have a special input for that in version 2.0. In the meantime, the easiest way would probably be to do a "manual override" in Year 2 (2009). Simply reduce your tuition fees for that year by the expected amount to be earned from your internship. For instance, say you expect to earn \$15,000. You can change cell D12 to read "=D30 + 15000." Notice this would be a plus sign since it is a positive cash flow. Hope that helps and thanks for the great suggestion. I'll post an update in the next day or so.
-RG
Current Student
Joined: 07 Aug 2007
Posts: 1062
Followers: 4

Kudos [?]: 31 [0], given: 0

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21 May 2008, 21:33
No problem- I sort of did work around it in a similar manner but wanted to make sure! Great spreadsheet and looking forward to V2.0
Current Student
Joined: 21 Mar 2007
Posts: 570
WE 1: Hi-tech Product Development
Followers: 8

Kudos [?]: 72 [0], given: 3

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22 May 2008, 02:51
Excellent! Thanks for sharing.
_________________
Current Student
Joined: 30 Oct 2007
Posts: 217
Location: Dallas
Schools: Fuqua, Anderson, Johnson, Ross
Followers: 1

Kudos [?]: 67 [0], given: 2

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22 May 2008, 09:47
Awesome! As rhyme said, you are more than ready for B-School
Re: The True Value of YOUR MBA   [#permalink] 22 May 2008, 09:47

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