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Why an M.B.A. Now?
The Simon M.B.A.: Now vs. Later
In a 2006 white paper, Dean Mark Zupan and Professor James Brickley compare the net present value of an M.B.A. for someone coming directly from college with someone working four years prior to enrolling. They find the net present value of an M.B.A. tends to be higher when the degree is earned earlier. The accompanying table shows why pursuing the M.B.A. now yields an appreciably higher value later since individuals secure the post-M.B.A. salary jump sooner and then see it compounded by subsequent annual wage increases. At the same time, these individuals sacrifice less in salary to attend business school than someone who has worked for several years prior to enrolling.
|
|
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
Year 6 |
Year 7 |
NPV |
|
Now |
-40,000 |
-40,000 |
72,000 |
75,600 |
79,380 |
83,349 |
87,516 |
$282,124 |
|
Later |
40,000 |
42,000 |
44,100 |
46,305 |
-40,000 |
-40,000 |
87,000 |
$167,911 |
Assumptions:
- Cash flows are inflation adjusted and expressed in 2009 dollars.
- $40,000 starting salary for a Bachelor’s graduate.
- Annual real wage growth of 5 percent/year for B.A. and M.B.A. graduates.
- Starting M.B.A. salary of $72,000 with no prior work experience.
- Starting M.B.A. salary of $87,000 with four years prior work experience.
- M.B.A. tuition of $40,000/year.
- A real discount rate of 2 percent/year.
