A Business Week table (“The High Price of Admission,” October 23, 2006, 60) comp

Question

A Business Week table (“The High Price of Admission,” October 23, 2006, 60) compares various business schools by calculating how long it takes to break even on a student’s investment in a Masters of Business Administration (MBA). For each school, the magazine staff divides the salary premium—the increase in salary paid to those with an MBA from a particular school—by the average cost of obtaining the degree.

What alternative method would you suggest for deciding which school to attend and, even more importantly, whether an MBA is a good long-term investment? Which method is best and why?

Explanation / Answer

Break Even Analysis is a method of calculating at what point (it might be expressed in units or Dollar Value ) , the costs ( expenses in this case ) equal revenue. Beyond this point , profit is achieved. Below this point , loss is incurred. However, in this case an investment needs to be analysed . Hence, Break Even Anlysis is not a sound tool. Better methods like Present Value Analysis or Annual Worth would give more reliable results. A Student can select the MBA school with the least Present Value. Apart from the quantitative factors lke PV, the student also needs to assess qualitative factors like the quality of education etc

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