Microsoft Office Tutorials and References

In Depth Information

**Case 10: The College Return on Investment Analysis**

10

THE COLLEGE RETURN ON

INVESTMENT ANALYSIS

CASE

Decision Support Using Excel

PREVIEW

The cost of going to college can be considered an investment. Generally, the cost is justified if a college

graduate

s future earnings sufficiently exceed the future earnings of a high school graduate. Under what

specific circumstances are college costs justified? In this case, you will use Excel to answer that question.

’

PREPARATION

Review spreadsheet concepts discussed in class and in your textbook.

Complete any exercises that your instructor assigns.

Complete any parts of Tutorials C and D that your instructor assigns, or refer to them as

necessary.

Review file-saving procedures for Windows programs, as discussed in Tutorial C.

Refer to Tutorial E as necessary.

BACKGROUND

The direct costs of higher education are tuition and fees, room and board, books, and supplies. Also, a college

student does not work full time while in school, and the indirect cost of those lost wages can be quite high.

A college graduate usually earns more per year than a high school graduate. Therefore, you can think of

the cost of higher education as an investment. Money is paid up front to cover college costs for a few years,

but each year after graduation, a college graduate’s earnings can be considered a “return” on the investment.

Over the course of a career, the total earnings can far exceed the cost of the initial investment, and so most

people think that a college degree is a good investment.

However, college costs have increased significantly for many years, in good times and bad. Furthermore,

many graduates in recent years have not found jobs that pay significantly more than a high school graduate

can earn. With the cost of the investment going up, and the returns going down, this case poses the question:

Is a college degree still a good investment? You will develop a spreadsheet model to create “what if” scenarios

with the significant variables and attempt to answer the question.

The spreadsheet model will contain the following major elements:

Data about the college under consideration—This information includes costs for yearly tuition

and fees, room and board, and books and supplies, as well as the expected rates of increase for

each cost. This data would also include the yearly salary and benefits expected for a graduate of

the school. For example, a school might charge $20,000 in yearly tuition and fees, $12,000 for

room and board, and $3,000 in books and supplies. The expected annual rates of increase could

be 10%, 8%, and 7%. A student might want to get an Accounting degree, and the school’s

Accounting graduates might have an average starting salary of $50,000 per year.

Data about the student

This information includes the number of years the student expects to

need to complete the degree, the part of the country where the student will seek employment,

and the annual salary the person would expect to earn as a high school graduate. For example,

—