Question

The IT Manager’s Dilemma

Sally Lewis graduated from college 4 years ago with a degree in computer science. She currently runs the business application support department for a mid-sized company in Austin. Sally currently earns $73,000 per year and expects an annual raise of 3% per year. Her company does not pay bonuses. Sally is 27 and intends on working for an additional 38 years (until she is 65). She has a fully paid insurance benefit and is currently in the 26% tax bracket. Although Sally enjoys her job she is concerned that her degree and current experience is to narrow and as a result might limit her potential career opportunities and earning potential. Sally is considering two options to further her career.

Option 1 is to do a two-year MBA at Brazonian University. The degree would round out her technical skills with a sound business background. The MBA would require two years of full-time study (where Sally would be unable to work) with an annual tuition amount of $58,000 payable each year. Books and other supplies would be $2,000 per year. After finishing the MBA sally thinks she would be able to get an immediate position and make $105,000 per year and also receive a $10,000 signing bonus. The salary would be expected to grow by 4% per year. She then would be in the 31% tax bracket.

Option 2 is to do a specialize one year program at Olympus University in Data Analytics. The program would be an intense 1-year program (she would be unable to work) and offer her employment opportunities starting at $98,000 growing at 5% per year while also receiving an $8,000 initial signing bonus. The compensation would put her in the 29% tax bracket. The cost for the 12-month program is $75,000 plus an additional $4,200 in fees.

Both programs offer insurance coverage for $3,000 per year. Housing on campus at both programs would be $4,000 less than what Sally is currently paying so would be a net savings. Sally has been a diligent saver in her career and as a result has the money in savings for either of these options and would pay cash and incur no financing fees.

Sally likes her current position but also is intrigued with both options. She see’s herself being happy in either of these options or even with the status quo. What she would like to do is make the decision and pursue the path that provides the best financial upside to her. Sally wants to use a 5.5% discount rate for her analysis.

So consider:

• What other factors (financial or otherwise) should Sally consider when making this decision?

• What risks are there for Sally to pursue either option?

• On a purely economic perspective what is the best decision for Sally to make?

• How does Sally’s age play into making this decision?   Does the decision change if Sally wants to retire in 20 years?

• What initial salaries (one each for the MBA and one for the Data Analytics program) would Sally need to be offered to make her indifferent about leaving her current situation (at what salary points are the future values equal?)

• Assume Sally wanted to borrow the money to attend either option the interest rate was 5.4%, how would this change Sally’s decision?

Answer 1

1)What other factors (financial or otherwise) should Sally consider when making this decision?
Ans-:Sally is concerned that her degree and current experience is to narrow and as a result might limit her potential career opportunities and earning potential.She should choose either option that provides the best financial upside to her.

2)What risks are there for Sally to pursue either option?
Ans-:The following risk for Sally to pursue either option
MBA would require two years of full-time study (where Sally would be unable to work) with an annual tuition amount of $58,000 payable each year. Books and other supplies would be $2,000 per year.
Data analytics one year program at Olympus University would be an intense 1-year program (she would be unable to work)
The cost for the 12-month program is $75,000 plus an additional $4,200 in fees.
She would be unable to work & the cost of the programs.

3)On a purely economic perspective what is the best decision for Sally to make?

Ans-:1 year program of Data Analytics is the best option because it's just for 12 Months & it's offer her employment opportunities starting at $98,000 growing at 5% per year,
The compensation would put her in the 29% tax bracket which is lesser than Option 1

4)How does Sally’s age play into making this decision?   Does the decision change if Sally wants to retire in 20 years?
Ans-:If Sally choose to become Data analyst, she only have to spend 1 year, Sally can change the decision her Monthly salary

$98,000 & also growing at 5% per year while also receiving an $8,000 initial signing bonus, which is better than her current position so she will definately retire in 20 years.

5)What initial salaries (one each for the MBA and one for the Data Analytics program) would Sally need to be offered to make her indifferent about leaving her current situation (at ialary points are the future values equal?)

Ans-:After completing MBA Sally would be able to get an immediate position and make $105,000 per year and also receive a $10,000 signing bonus.

& After completing Data Analytics program Sally gets $98,000 & also receiving an $8,000 initial signing bonus
year and also receive a $10,000 signing bonus, also growing at 5% per year
And program is for 1 year with less tax bracket
So, The Data Analyst salary points are the future values equal.

6)Assume Sally wanted to borrow the money to attend either option the interest rate was 5.4%, how would this change Sally’s decision?
Ans-:Sally has been a diligent saver in her career and as a result has the money in savings for either of these options and would pay cash , so she can pay the interest 5.4% to pursue her career to earn better than her current job.