Question

Option 2: Evaluate a major financial decision you have made recently or are considering. (ie buy vs lease car, educational degree, buy vs rent apartment)

• Determine cash flows (include all relevant expenses/costs)

• List and explain assumptions

• Compute IRR, NPV, Payback, Discounted Payback to make decision

• Conclusion: What decision did you make and why?

Answer 1

Ans

I think, one of the major financial decision in anyone’s life is go for a good MBA, an MBA from a reputed Institute cost Rs 12,00,000 for the 2 year course and if you are working you have to add your salary to it.

Here is the calculation.

Particulars	Rs
Current Salary Per year	400000
Cost of MBA 2 years`	1200000
Salary to be recived for 2 years	800000
Total cost	2000000
Returns per monts or salary per month	50000
Loan for 10 years @10% per annum	1200000
Yearly salary	600000
Less- Loan repayment	24000
Total Disposable income after MBA	26000
Total Disposable before MBA	33333
Internal Rate of Return %	30
Average salary hike %	10%
Salary 2nd year	55000
Salary 3rd year	60500
Disposable income after making loan repayment of EMI Rs 24,000	36500

So here is the calculation, for doing a 2 year MBA one has to spend at least INR I,e. Rs 12,00,000 + 8,00,000 ( Rs 4,00,000 per year salary) so total investment is Rs 20,00,000 and after completing the MBA average salary hike is around 50%, so one will be getting at least Rs 50,000 per month and if a person take a loan of Rs 12,00,000 for 10 lakh then he has repay around Rs 20,00,000 with 10% reducing rate of return which amount to Rs 24,000 per month installment so in total his disposable income will be Rs 26,000, here internal rate of return on Rs 20,00,000 investment will be 30% but actual return is around 15% if we take in account education loan repayment schedule and if we consider average salary hike of 10%, so here is the take it will take around 2 more year of Job work to reach the level of higher salary Pre MBA and if we consider the average salary Hike Pre MBA of 10% then it can take at least 3 years to earns considerable more salary pre- MBA. So in the end conclusion is if you are planning for a MBA it might take at least 5 years to get positive return on investment also 5 years of precious life time.