Is MBA Worth the Expenses? NPV of MBA at an Expensive Top 20 US Business School

This article has been reviewed by Sumeet Sinha, MBA (Emory University Goizueta Business School). Should you have any inquiries, please do not hesitate to contact at sumeet@finlightened.com.

With sky-high tuition at Business Schools in America, is MBA worth the expenses?

Every professional who wants to grow in his or her career considers adding an academic credential to the resume. A master’s degree after a bachelor’s degree and 3-5 years of full-time work experience seems like the perfect solution to most analysts and entry-level managers. Since MBA requires a hefty investment, everyone considering taking the plunge asks the key question – is MBA worth the expenses?

I did my own analysis before deciding on getting an MBA. I took out a huge student loan to get my MBA and then quickly paid it off in 26 months, you can read about it here.

Analysis: Net Present Value or NPV of MBA

Based on my analysis, the NPV of MBA at an Expensive Top 20 US Business School is more than $1 million (conservatively).

You can also use an NPV Calculator to calculate the Net Present Value Online.

Assumptions and Brief Description of Terms Used

Discount Rate

According to NPVCalculator.net, the discount rate refers to the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows. Simply put, this is the rate of return I’d get if I choose to invest my money elsewhere. For the purpose of this analysis, I’ve chosen 8% which is the average return I’d expect on investing in S&P 500.

Pre and Post MBA Salary (Net)

I wanted to determine the difference an MBA can make in my earnings potential, and for a more accurate analysis, I have used the yearly salaries, net of taxes. Pre-MBA gross salary of $65,000 and Post-MBA gross salary of $120,000 is a fair assumption for a top school in the US.

I have used NY state as an example to calculate the post-tax salaries. To customize your calculations, you may use this link.

MBA Cost Year 1 and Year 2

This is the cost of attending an MBA program full-time. For some, it may require a move to a different city hence changing the cost of living as well. Some may pay the full tuition while some may have scholarships or other aid available. I have used $60,000 per year but this number can vary greatly on a case-to-case basis.

Business School	MBA Tuition
Wharton	$160,326
MIT Sloan	$151,368
Darmouth (Tuck)	$147,258
Harvard Business School	$146,880
New York University (Stern)	$145,860
Northwestern (Kellogg)	$144,948
Chicago Booth	$144,000
Stanford GSB	$143,652
Yale SOM	$141,850
Duke (Fuqua)	$138,200
Carnegie Mellon (Tepper)	$136,000
Cornell (Johnson)	$135,730
UNC Kenan-Flager	$130,506
Emory University (Goizueta)	$127,400
Washington University in St. Louis (Olin)	$122,000
Georgetown University (McDonough)	$118,200
University of Texas at Austin (McCombs)	$109,424

Net Present Value or NPV of MBA

NPV or Net Present Value is the value of all future cash flows in today’s dollar terms. The discount rate is used to calculate that. You can read more about NPV here.

Pre and Post MBA Salary Increment Rate

This is the rate of increase in the yearly salary in both cases. To adjust for promotions and increased bonuses and even stock options as you rise higher, I’ve picked an annualized growth rate of 5% on a job without an MBA, and 7% on a job after an MBA.

Other Assumptions

I enroll and start my two year MBA program at the age of 27
I have $0 earnings in the first year of my MBA
Due to summer internship, I earn post-tax earnings of $12,000 in the second year.
Retirement age is 65 years

Conclusion

Taking these assumptions and doing the math, I figured the NPV of MBA from a top B school in the US is at least a million dollars. Besides the monetary gain, an MBA provides the opportunity to hone soft skills, learn alongside really smart people, and build a strong professional network.

So, what do you think – Is MBA worth it?