Evaluate Financially Your Decision to Do Mba Course

Question: Evaluate financially your decision to do MBA Course by classifying various cash flows into sunk, relevant, opportunity and incremental.

Evaluation

Doing MBA is a critical decision from personal, professional as well as financial perspective. It may appear that as we are investing around Rs 15.25 lac so the total investment is 15.25 lac rupees. But the different costs which are involved in this whole process of 2 years.

1. First, let us consider the Sunk Cost that has been incurred or this process.

Fees of Coaching Class(for 2 years)=Rs 30,000

Travelling Expense(100 total classes)=50*100=Rs 5000 (100 total number of classes)

               So ,the total sunk cost comes out to be Rs 30,000+5000=Rs 35000

2. Next, let us consider the Relevant Cost that has been incurred.

A relevant cost is a cost that only relates to a specific management decision, and which will change in the future as a result of that decision. It can be called an avoidable cost or differential cost. Let us consider that a person is coming from a different state to Bangalore for doing an MBA.  

So assume, the moving from one state to Karnataka takes around

a) Travelling Cost by flight (on an average 6 times in 2 years and average fare considering 15,000 rupees) = 15,000*6 rupees = Rs 90,000.

b) For staying in an expensive city like Bangalore expenses would be around 8,000 rupees / month. So the total Expense for the whole course (around 22 months) turns out to be 8,000*22 = 1,76,000 rupees.

So the Total Relevant Cost is = (90,000+1,76,000) rupees = 2,66,000 rupees

3. Third comes the Opportunity cost that we are incurring while doing an MBA. Suppose for an Individual if he or she was working for these two years,