DONT BE A FOOL STAY IN SCHOOL Team

DON’T BE A FOOL – STAY IN SCHOOL Team 3 Eric Aube Joseph Tirona

Overall Question � � Given: A recent graduate of the Mechanical Engineering Department at Cal Poly Pomona wants to know if he should get his MBA while working part time, get his Master’s in Mechanical Engineering as a full-time student, or simply get a job and start saving for his future. Find: Research on starting salaries, ROR on investments, inflation rates, annual salary increases, etc.

Scenario # 1 � � � � Education: Bachelor’s in Mechanical Engineering (BSME) Starting Salary: $53, 000 Average Annual Increase in Salary: 7% Rate of Return (ROR) on Investments: 2% Cost of Living: $30, 000 for the first year, with a adjustment for inflation in all subsequent years Taxes: Done according to bracket for a single filer on page 394 (Table 12 -1 a) Inflation: 4% Tuition Costs: None

Scenario # 2 � � � � Education: Bachelor’s in Mechanical Engineering (BSME) with an MBA Starting Salary: $65, 200 Average Annual Increase in Salary: 9% Rate of Return (ROR) on Investments: 2% Cost of Living: $30, 000 for the first year, with a adjustment for inflation in all subsequent years Taxes: Done according to bracket for a single filer on page 394 (Table 12 -1 a) Inflation: 4% Tuition Costs: $10, 000 annually for 3 years

Scenario # 3 � � � � Education: Master’s in Mechanical Engineering Starting Salary: $67, 248 Average Annual Increase in Salary: 10% Rate of Return (ROR) on Investments: 2% Cost of Living: $30, 000 for the first year, with a adjustment for inflation in all subsequent years Taxes: Done according to bracket for a single filer on page 394 (Table 12 -1 a) Inflation: 4% Tuition Costs: $14, 000 annually for 2 years

Cash Flow Diagram – Scenario 1 Cash Flow vs. Age

Cash Flow Diagram – Scenario 2 Cash Flow vs. Age

Cash Flow Diagram – Scenario 3 Cash Flow vs. Age

SENSITIVITY ANALYSIS

Future Worth vs. Inflation Rate

Conclusion for FW vs. Inflation Rate � � � An increase inflation rate causes a decrease in total future worth. The impact of inflation is severe; thus, you have to be careful to ensure that you are saving enough and getting enough ROR to combat any rises in inflation. Inflation impacts all three scenarios fairly equally; but MSME still wins because its total FW is higher than all the others for the same inflation rates.

Future Worth vs. Age of Retirement

Conclusion for FW vs. Age of Retirement � � The degree that you have significantly increases the rate at which you gain future worth. (MSME > MBA > BSME) For every additional year that you work, you gain significantly in your total FW. (In addition, for every year earlier that you begin to save, you gain a very fruitful amount in total FW. ) The degree that you attain increases the rate at which you gain total FW: therefore, MSME wins this category.

Future Worth vs. Rate of Return (ROR) on investments

Conclusion for FW vs. Rate of Return on Investments � � The higher your rate of return on investments, your total FW increases exponentially. For every ROR that we found, getting your MSME is the most beneficial scenario in trying to get the most out of your FW.

Future Worth vs. Starting Salary

Conclusions for FW vs. Starting Salary � � For each starting Salary, getting a MSME is still the best option. This is further magnified when one considers that those graduates of MSME programs usually have HIGHER starting salaries than those graduates with only a BSME or MBA anyway.

Future Worth vs. Annual Cost of Living

Conclusions for FW vs. Annual Cost of Living � Any increase in one’s Cost of Living impacts each scenario equally. Thus, MSME is still the best option because it had the highest FW originally.

Future Worth vs. Annual Salary Increase

Conclusions for FW vs. Annual Salary Increase � � Unlike all the other scenarios, all three lines fall on top of each other. Whichever job has the highest annual salary increase, (in terms of percentage), is the best option. We will call this a wash; but generally, MSME graduates have a higher annual salary increase than those with a BSME. (10% vs. 7%) MSME’s also have a very slightly higher increase than those with an MBA. (10% vs. 9%)

Overall Conclusions � Get an Master’s in Mechanical Engineering!