Is it okay to drop a year to prepare for CAT and XAT, etc. entrance exams? Will it affect my career in any way? Do schools accept gap years?

Some schools accept gap years, but for appearing in an interview, more weightage is given to the work experience. Some candidates prepare for this exams along with their respective jobs. So, that's why most of the big firms don't consider this gap year for preparation as a valid reason.

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