The True Value of *YOUR* MBA

For my friends at GMATClub Created by ryguy904 2008

(v. 2.0)

A couple of notes on how this spreadsheet works

1) Fill in the yellow cells. Excel will do the rest! 2) You can choose to run either the single stage, two stage, or three stage NPV models (or all three!). It's just a matter of how intricate you want to get with running scenarios. 3) Keep in mind, this is not designed to be exact to the nearest penny. The more time that I spent creating this, the more complex the tool started to become (for instance, I was thinking that you could choose different growth rates for your salary and your bonus--ultimately I opted for a simpler "total compensation" growth rate). I didn't want to get too crazy or too intricate where it became hard for people to follow with more than a simple set of directions. I thought that if I had some solid data entry placeholders, you could tweak things as you thought appropriate for your given situation. All of the formulas are there for you to play with, tweak, and adjust. If you have any questions on how to make changes based on your circumstances, let me know. 4) If you are matriculating in 2010, 2011, or another year, simply change the dates accordingly. My base assumption is for folks matriculating in 2009. 5) I'm human, so if you find any errors, let me know and I'll correct them. 6) Feel free to adjust any of the assumptions. I wanted to create a footprint that you could change as much as you like.

General Assumptions
1) Compensation upon graduation will be 50% in your first year. This assumes that you work from July - December in the year that you graduate. Again, your situation may be that you wish to go on vacation for three months and "utilize" your signing bonuses and instead start in September. Feel free to adjust accordingly. 2) Assumptions are that you will not have any compensation in the year of matriculation. I realize this is completely unrealistic, but I did this for two reasons. a) Some folks are short-timing it four months prior to school ( I won't name names), while others take a week off before starting. b) This brings about a more conservative approach in the calculation (if you don't make any manual adjustments) in terms of when you will "breakeven." Being a conservative guy, I chose this as the default method. Have I mentioned that you can adjust things if you prefer to do so??

3) The models assume that tuition is paid in the year that you attend school. I realize this is an unrealistic assumption for almost everybody. Most of us will be taking out student loans and paying them back over the course of 5, 10, or even 30 years. However, I chose to do it this way, because again, it is the conservative approach (makes your NPV and payback time for the MBA route look worse). Feel free to adjust your model accordingly if wish to do so. For example, if you are going into investment banking, you could say that your tuition is $0 (or you can choose to plug in your living expenses---again your choice) and you will pay back $20,000 in year 1, $30,000 in year 2, and $50,000 in year 3. You can make a manual adjustment in the cell for post-MBA year 1 by tacking on a "-25000" to the formula. You would then adjust post-MBA years 2 and 3 accordingly. 4) You can also include living expenses in the cell marked tuition/fees. I chose not to, since I have an S.O. that will be "helping" me with this. My living expenses will remain (somewhat) the same whether I'm in school or not. I won't be eating at the same restaurants, or for that matter eating out as much, but I'll still be consuming. Furthermore, I chose to show compensation as gross compensation (not net of housing, food, living expenses, taxes, etc.).

5) Discount rate is just a fancy-pants finance term. It basically means that a dollar today is worth more than a dollar tomorrow. Conversely, a dollar tomorrow is worth less than a dollar today. Don't believe me? Would you rather have $150,000 today or $150,000 one year from now. Good! So now you're with me! Don't be freaked out (or overly excited) about seeing a salary in 2020 of $250,000. It's not the same as $250,000 in today's terms. I don't know what the exact discount rate should be, but I'd say that it should be in the range of 3-10%. 3% would be a more "aggressive approach" meaning that time factor is not as sensitive and future compensation "means more" (i.e., has more value) in the calculations. 10% would be extremely conservative. I'd choose something like 4-7% to be the most realistic. 6) If you don't want to have your compensation go up by X% per year, you can manually type in your expected compensation in the appropriate year(s). The NPV and breakeven formulas will still calculate accordingly. Bear in mind, this may overwrite other formulas, which you will have to recreate (or open the original document) if you want to get those back. 7) Part-time programs. There is a drop-down box that allows you to choose the program that you are interested in. If you are interested in the part-time program, you will then need to enter in your current salary and this will be used accordingly to offset your tuition (which again, I assumed is being paid upfront). I assumed that part-timers would not have an internship during school and also that they would not receive a signing bonus upon graduation like full-timers usually do.

Single Stage Assumptions

1) For the non-MBA model, your current compensation will continue to grow at the same rate until the end of time. 2) For the MBA model, your compensation upon graduation will continue to grow at the same rate until the end of time.

Two Stage Assumptions

1) For the non-MBA model, your current compensation will continue to grow at the same rate for two years (i.e., you will be in the job for three years). It is assumed that you will receive a new/better/higher-paying job based on work experience and increased responsibilities at the beginning of 2012. After that, your compensation will grow at the same rate until the end of time. 2) For the MBA model, your post-MBA compensation will continue to grow at the same rate for three years (i.e., you will be in your post-MBA job for a total of four years). It is assumed that you will receive a new/better/higher-paying job at the beginning of 2016. After that, your compensation will grow at the same rate until the end of time. 3) If you feel like that you would transition to jobs soon/later, feel free to adjust accordingly.

Three Stage Assumptions

1) For the non-MBA model, your current compensation will continue to grow at the same rate for two years (i.e., you will be in your current job for three years). It is assumed that you will receive a new/better/higher-paying job based on work experience and increased responsibilities at the beginning of 2012. After that, your compensation will grow at a constant rate for another three years. After that, it is assumed that you will receive a new/better/higher-paying job based on increased work experience and job responsibilities at the beginning of 2016. After that, your compensation will grow at the same rate until the end of time. 2) For the MBA model, your post-MBA compensation will continue to grow at the same rate for three years (i.e., you will be in your post-MBA job for a total of four years). It is assumed that you will receive a new/better/higher-paying job at the beginning of 2015. After that, your compensation will grow at a constant rate for another two years (i.e., you will be in your second post-MBA job for a total of three years). After that, you will receive another new/better/higher-paying job at the beginning of 2018, at which point your compensation will grow at the same rate until the end of time. 3) If you feel like that you would transition to jobs soon/later, feel free to adjust accordingly.

How to determine if you should attend a part-time or full-time MBA program

OK, so it's not for me to decide if you should do NYU's part-time program or Wharton's full-time program. The program that makes the most sense given your career goals is up to you to decide. What I can do though, is help determine the cost-benefit analysis of giving up two years of your salary, versus staying in the workforce and going through a three-year part time program. I was considering making a seperate tool/calculator for this, but I didn't want to get complicated. Here are the directions that I recommend following if you want to compare whether or not you should do a full-time or a part-time MBA program 1) Figure out which "stage" NPV you want to run (e.g., Two Stage NPV---this is an example; you can use whichever stage model you prefer) 2) Copy the tab (i.e., worksheet) for the Two Stage NPV a.) the Two-Stage NPV tab b.) Select "move or copy" c.) Check the box, "create a copy" d.) Click OK 3) You will now have two identical tabs for the Two-Stage NPV. On one of the sheets, run your information through selecting "part-time program," and on the other sheet, select "full-time program." 4) To determine which makes the most financial sense, review the NPV information in each of the tabs from the tables that are titled "MBA" and starts in cell F14.

Value of an MBA
No MBA Cash flows MBA Cash flows No MBA 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 1-YR NPV 2-YR NPV 3-YR NPV 4-YR NPV 5-YR NPV 6-YR NPV 7-YR NPV 8-YR NPV 9-YR NPV 10-YR NPV 11-YR NPV 12-YR NPV $245,173 $369,531 $495,084 $621,844 $842,984 $879,033 $1,009,485 $1,141,192 $1,274,165 $1,408,417 $1,543,959 $1,680,805 2012 $122,000 2012 $15,000 2013 $128,100 2013 $15,000 2014 $134,505 2014 $15,000 2015 $141,230 2015 $150,000 MBA 2012 1-YR NPV 2013 2-YR NPV 2014 3-YR NPV 2015 4-YR NPV 2016 5-YR NPV 2017 6-YR NPV 2018 7-YR NPV 2019 8-YR NPV 2020 9-YR NPV 2021 10-YR NPV 2022 11-YR NPV 2023 12-YR NPV $29,423 $43,291 $176,641 $311,273 $447,199 $584,432 $722,985 $862,870 $1,004,100 $1,146,688 $1,290,647 $1,435,990 False False False False False False False False False False False False Current Salary $ 122,000 2016 $148,292 2016 $157,500 Year 2017 2018 $155,706 $163,492 Year 2017 2018 $165,375 $173,644 2019 2020 $171,666 $180,250 2019 2020 $182,326 $191,442 2021 $189,262 2021 $201,014 2022 $198,725 2022 $211,065 2023 $208,661 2023 $221,618 2024 $219,094 2024 $232,699

No MBA Salary/Bonus Growth Rate 5.0%

MBA Full-Time or Part-Time? Part-Time Internship Compensation (total) $ 15,000 Post-MBA Starting Salary/Bonus $ 150,000 Salary (if Part-Time MBA) $ 35,000 Signing Bonus $ 20,000

Yearly tuition/fees $ 20,000 Discount rate 4.0%

Salary/Bonus Growth Rate 5.0%

Breakeven Year 2012 2013 2014 2015 2016 2017 2018 2019 1 Year After Graduation 2 Years After Graduation 3 Years After Graduation 4 Years After Graduation 5 Years After Graduation 6 Years After Graduation 7 Years After Graduation 8 Years After Graduation

2020 or later

#N/A

2020 2021 or later

9 Years After Graduation 10 Years+ After Graduation

Value of an MBA
Year No MBA Cash flows 2009 $65,000 School 2009 -$45,000 Stage 1 2010 $68,250 School 2010 -$30,000 2011 $71,663 School 2011 $80,000 2012 $85,000 2013 $87,975 Stage 1 2013 $136,107 2014 $91,054 2015 $94,241 Year MBA Cash flows No MBA 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 1-YR NPV 2-YR NPV 3-YR NPV 4-YR NPV 5-YR NPV 6-YR NPV 7-YR NPV 8-YR NPV 9-YR NPV 10-YR NPV 11-YR NPV 12-YR NPV $130,625 $196,881 $272,446 $347,647 $471,237 $496,967 $571,089 $644,855 $718,266 $791,324 $864,030 $936,388 2012 $127,800 MBA 2010 1-YR NPV 2011 2-YR NPV 2012 3-YR NPV 2013 4-YR NPV 2014 5-YR NPV 2015 6-YR NPV 2016 7-YR NPV 2017 8-YR NPV 2018 9-YR NPV 2019 10-YR NPV 2020 11-YR NPV 2021 12-YR NPV -$73,846 $118 $113,732 $230,077 $349,218 $483,572 $617,280 $750,344 $882,769 $1,014,558 $1,145,712 $1,276,236 False False False False False False True True True True True True Current Salary/Bonus $ 65,000 Year 4 (2012) Salary/Bonus $ 85,000 2014 $144,954 2015 $170,000 2016 $175,950 2017 $182,108 Stage 2 2018 2019 $188,482 $195,079 2020 $201,907 2021 $208,973 Stage 2 2016 2017 $97,539 $100,953 2018 $104,487 2019 $108,144 2020 $111,929 2021 $115,846

No MBA Stage 1 Salary/Bonus Growth Rate 5.0% (2010 - 2011) Stage 2 Salary/Bonus Growth Rate 3.5% (2013-2021)

Full-Time or Part-Time?

MBA Salary (if Part-Time MBA) $ 65,000 Signing Bonus $ 20,000

Internship Compensation (total) $ 15,000 Post-MBA Starting Salary/Bonus $ 120,000 Year 5 (2016) Salary/Bonus $ 170,000

Yearly tuition/fees $ 45,000 Discount rate 4.0%

Stage 1 Salary/Bonus Growth Rate 6.5% (2012 - 2015) Stage 2 Salary/Bonus Growth Rate 3.5% (2016-2021)

Breakeven Year 2012 2013 2014 2015 2016 1 Year After Graduation 2 Years After Graduation 3 Years After Graduation 4 Years After Graduation 5 Years After Graduation

2016

5 Years After Graduation

2017 2018 2019 2020 2021 or later

6 Years After Graduation 7 Years After Graduation 8 Years After Graduation 9 Years After Graduation 10 Years+ After Graduation

Value of an MBA
Year No MBA Cash flows 2009 $65,000 School 2009 -$45,000 Stage 1 2010 $66,950 School 2010 -$30,000 2011 $68,959 School 2011 $80,000 2012 $85,000 Stage 2 2013 2014 $89,250 $93,713 Stage 1 2012 $127,200 MBA 2010 1-YR NPV 2011 2-YR NPV 2012 3-YR NPV 2013 4-YR NPV 2014 5-YR NPV 2015 6-YR NPV 2016 7-YR NPV 2017 8-YR NPV 2018 9-YR NPV 2019 10-YR NPV 2020 11-YR NPV 2021 12-YR NPV -$73,846 $118 $113,199 $228,454 $359,962 $492,103 $624,878 $758,293 $898,810 $1,037,976 $1,175,804 $1,312,307 False False False False False False True True True True True True Current Salary/Bonus $ 65,000 Year 4 (2012) Salary/Bonus $ 85,000 Year 8 (2016) Salary/Bonus $ 125,000 2013 $134,832 2014 $160,000 2015 $167,200 2015 $98,398 Year MBA Cash flows No MBA 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 1-YR NPV 2-YR NPV 3-YR NPV 4-YR NPV 5-YR NPV 6-YR NPV 7-YR NPV 8-YR NPV 9-YR NPV 10-YR NPV 11-YR NPV 12-YR NPV $129,375 $193,131 $268,696 $344,987 $470,781 $499,777 $594,767 $689,300 $783,379 $877,005 $970,181 $1,062,909 Stage 2 2016 $174,724 2017 $182,587 2018 $200,000 Stage 3 2019 2020 $206,000 $212,180 2021 $218,545 2016 $125,000 2017 $129,375 Stage 3 2018 2019 $133,903 $138,590 2020 $143,440 2021 $148,461

No MBA Stage 1 Salary/Bonus Growth Rate 3.0% (2010 - 2011) Stage 2 Salary/Bonus Growth Rate 5.0% (2013-2015) Stage 3 Salary/Bonus Growth Rate 3.5% (2017-2021) MBA Salary (if Part-Time MBA) $ 65,000 Signing Bonus $ 20,000 Stage 1 Salary/Bonus Growth Rate 6.0% (2012 - 2014) Stage 2 Salary/Bonus Growth Rate 4.5% (2016 - 2017) Stage 3 Salary/Bonus Growth Rate 3.0% (2019 - 2021)

Full-Time or Part-Time?

Internship Compensation (total) $ 15,000 Yearly tuition/fees $ 45,000 Discount rate 4.0% Post-MBA Starting Salary/Bonus $ 120,000 Year 4 (2015) Salary/Bonus $ 160,000 Year 8 (2018) Salary/Bonus $ 200,000 Breakeven Year 2012 2013 2014 2015 2016 1 Year After Graduation 2 Years After Graduation 3 Years After Graduation 4 Years After Graduation 5 Years After Graduation 2016 5 Years After Graduation

2017 2018 2019 2020 2021 or later

6 Years After Graduation 7 Years After Graduation 8 Years After Graduation 9 Years After Graduation 10 Years+ After Graduation