The Economic Value of Main Report

Appendix 8: Overview of investment analysis measures

The appendix provides context to the investment analysis results using the simple hypothetical example summarized in Table A8.1 below. The table shows the projected benefits and costs for a single student over time and associated investment analysis results. 51

Table A8.1: Example of the benefits and costs of education for a single student

Year

Tuition Opportunity cost

Total cost Higher earnings

Net cash flow

1

2

3

4

5

6

1

$1,500

$20,000

$21,500

$0

-$21,500

2

$0

$0

$0

$5,000

$5,000

3

$0

$0

$0

$5,000

$5,000

4

$0

$0

$0

$5,000

$5,000

5

$0

$0

$0

$5,000

$5,000

6

$0

$0

$0

$5,000

$5,000

7

$0

$0

$0

$5,000

$5,000

8

$0

$0

$0

$5,000

$5,000

9

$0

$0

$0

$5,000

$5,000

10

$0

$0

$0

$5,000

$5,000

$21,500

$35,753

$14,253

Net present value

18.0%

Internal rate of return

1.7

Benefit-cost ratio

4.2 years

Payback period

Assumptions are as follows:

▪ Benefits and costs are projected out 10 years into the future (Column 1).

▪ The student attends the college for one year, and the cost of tuition is $1,500 (Column 2).

▪ Earnings forgone while attending the college for one year (opportunity cost) come to $20,000 (Column 3).

▪ Together, tuition and earnings forgone cost sum to $21,500. This represents the out-of-pocket investment made by the student (Column 4). ▪ In return, the student earns $5,000 more per year than he otherwise would have earned without the education (Column 5).

▪ The net cash flow (NCF) in Column 6 shows higher earnings (Column 5) less the total cost (Column 4).

▪ The assumed going rate of interest is 4%, the rate of return from alternative investment schemes for the use of the $21,500.

51 Note that this is a hypothetical example. The numbers used are not based on data collected from an existing college.

The economic value of Monroe Community College

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