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.

MBA6211 – Managerial Decision Making Team Assignment #3 - Decision Tree Analysis

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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 Kim’s final GPA for the two programs.

Comment on the difference in the EV for the 2 programs. (15 pts)

3. If Kim’s current salary is $65,000 annually, what is her total cost for her MBA for the 2 different

program options. Include the loss of income she would incur by going to school full-time. (15

pts)

4. Based on the EV salary calculated in Q2, determine the breakeven point for Kim’s MBA

education for the two programs. Assume that she earns a 5% pay increase per year after

graduation. If Kim was using breakeven or payback as the only criteria for deciding which

program to join, then which MBA program will she choose? (25 pts)

5. If Kim knew that her final GPA was 3.75, then how would that impact the breakeven point for

the two programs? (10 pts)

6. As a Career Consultant, what advice would you give Kim to help her make the optimum

decision? What other factors might she consider? (10 pts)

7. EXTRA CREDIT: If Kim received a total scholarship for $50,000 toward the tuition at the top-tier

program, how would that impact her payback period calculation in Q4? (5 pts)

SUBMISSION:

Upload ONE SOLUTION (i.e., an Excel file) per team using the Turnitin Link on Blackboard. List the names

of all team members. Clearly show your answers…don’t make me guess or assume I know which cell

has the answer.