midterm-mba810-wi01

midterm-mba810-wi01 - OSU, MID-TERM EXAM FOR MBA 810 Anil...

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OSU, MID-TERM EXAM FOR MBA 810 Anil K. Makhija, Winter 2001 Please answer the following 5 questions. There is substantial credit for method. Please show all work neatly. The exam carries a total of 60 points. If you need to invoke assumptions, please do so and state them clearly. Good luck. 1. It has been suggested that a better way to compare MBA schools is to take into account what would have been the salary of the student had he not gone on to do an MBA. Also, it would be better to take a longer 10-year window. So, to compare the performance of two MBA programs, consider the following data: (A 12% discount rate is considered to be appropriate). School A School B Year one tuition to be paid at t=0 $10,000 $20,000 Year two tuition to be paid at t=1 $12,000 $25,000 Typical income in first year of job (t=3) $88,000 $110,000 Expected annual rate of income growth (t=3 to t=10) 7% 5% Estimated lost income for year 1 (t=1) $45,000 $60,000 for average student in program Estimated rate of income growth 3% 3% had the student not done his MBA (till t=10) What are the annual rates of return for the two schools? (12 points) 2. According to an analyst an old economy stock, Old’s Gold or OG, is predicted to have the following earnings and dividends per share. Also, according to the analyst, dividends of year 5 and beyond are predicted to grow indefinitely at 4.5%. The prevailing T-Bill rate is 5%, and the stock is considered to be of average risk (so that the
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midterm-mba810-wi01 - OSU, MID-TERM EXAM FOR MBA 810 Anil...

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