Managerial Decision Making

Kim is trying to decide between two full-time admissions offers from prestigious MBA 2-year programs.
She is considering an in-state university and a top-tier private university. She had decided that both
programs will offer her an excellent education and provide great career prospects after graduation.
However, the cost differences are significant, and she really wants to avoid being in major debt after her
MBA. Kim wants to base her decision primarily on the quickest payback period for her MBA education.
Table 1 shows the annual costs for the two programs next year.
TABLE 1: MBA Program Costs
Program Costs Per Year Mid-Tier Program Top-Tier Program
Tuition $ 21,500 $ 74,700
Room & Board $ 18,000 $ 36,300

Kim is not sure which career path she wants to pursue, but she also understands that her career options
and starting salary will likely depend on her performance in the program. She is confident that she can
earn at least a 3.25 GPA with a probability of 60%. She feels there is a 25% probability she could reach
3.50 GPA and only a 15% chance she will earn a 3.75 GPA or higher.
Based on the MBA program websites, the average starting salaries are presented in Table 2. Kim knew
from Career Services at these Programs that students who earn a GPA of around 3.50 will see offers at
the mean salary number. But if students have a GPA closer to 3.25 then salary offers are around 5%
below the mean. And students who earn a 3.75 or higher GPA are likely to see offers as high as 15%
above the mean.
TABLE 2: Average Starting Salaries Based on Career Path
Career Path Mid-Tier Program Top-Tier Program
Consulting $ 108,909 $ 152,000
Finance / Accounting $ 93,666 $ 174,000
Supply Chain / Operations $ 94,833 $ 138,000
Marketing / Sales $ 99,979 $ 112,000
Kim also learned from Career Services that students graduating with higher GPAs were more likely to
pursue Consulting and Finance careers. Career Services provided her with the information in Table 3
indicating which career paths students are likely to pursue based on the final GPA. Although Kim
preferred a career in Marketing, she was intrigued by the other areas especially since starting salaries
were much higher for Consulting and Finance offers.
TABLE 3: Percentage of Students Pursuing Different Careers Based on GPA
Career Path 3.75 GPA 3.50 GPA 3.25 GPA
Consulting 35% 28% 10%
Finance / Accounting 30% 26% 35%
Supply Chain / Operations 20% 23% 35%
Marketing / Sales 15% 22% 20%
Kim wants to use Decision Tree Analysis to help her decide on which MBA program offer she should
accept. Answer the following questions and clearly state any assumptions you are making.
Questions:
1. Develop a Decision Tree that maps out the different career paths and starting salaries for the
two programs. (25 pts)
2. Determine the EV or expected value salary based on Kims final GPA for the two programs.
Comment on the difference in the EV for the 2 programs. (15 pts)
pact her payback period calculation in Q4? (5 pts)