Return On Investment Essay
GaGirl13
BUS401Week3Assignment.docxWeek 3 - Assignment
Return on Investment: Education Funding
Develop a three- to four-page analysis (excluding the title and reference pages) on the projected return on investment for your college education and projected future employment. This analysis will consist of two parts:
Part 1: Explain how you made the decision to pursue an education in Business or Finance. Include a summary of expenses related to that decision, such as: cost of tuition, cost of books, the interest you may pay on any loans and any other associated expenses.
Part 2: Conduct research on your desired occupation and identify how much compensation (return) you expect to earn. How long will it take to pay back the return on this investment? Be sure to consider the trade-off between the cost of education and the expected return on investment.
The research paper should be comprehensive and include specific examples. The paper should be formatted according to APA style as outlined in the Ashford Writing Center. You must include at least two scholarly sources from the Ashford University Library or other scholarly sources other than the textbook to support your claims. Cite your sources in-text and on the reference page.
***Special Note***
Hello Everyone,
I wrote this announcement AFTER my last class turned in the Week 3 assignment. I am sharing this BEFORE you work on the Week 3 to make sure you are clear on how to do this analysis.
I decided the best way to show you where you derailed is to use an actual example of my situation. I am a University of the Rockies Student. I am working on a degree in psychology. Many of you would say “Wow that is wonderful”. You are right. I am going to school tuition free, but is it really?
Working on my Master’s degree is not free. I could be teaching at my local college earning $50 an hour ($150 a week per class). I have decided to trade off a class so I can concentrate on my studies. I will be enrolled in this program for 60 weeks. I am paying an “opportunity cost” of 150 * 60 = $9000. Is this a good deal?
Ashford will give me a 3% raise when I finish my Master’s degree. This 3% will be compounded for as long as I work for Ashford University. So let’s make some assumptions. I will normally get a 3% raise, but next year my raise will be 6%. Here is my analysis:
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Books |
400 |
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Opportunity Cost |
9000 |
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Total Cost |
9400 |
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No Degree |
With Degree |
Profit |
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Payback |
$ 75,000.00 |
$ 79,567.50 |
$ 4,567.50 |
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NPV |
$50,422.48 |
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Year 1 |
$ 77,250.00 |
$ 81,954.53 |
$ 4,704.53 |
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Year 2 |
$ 79,567.50 |
$ 84,413.16 |
$ 4,845.66 |
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Year 3 |
$ 81,954.53 |
$ 86,945.56 |
$ 4,991.03 |
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Year 4 |
$ 84,413.16 |
$ 89,553.92 |
$ 5,140.76 |
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Year 5 |
$ 86,945.56 |
$ 92,240.54 |
$ 5,294.98 |
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Year 6 |
$ 89,553.92 |
$ 95,007.76 |
$ 5,453.83 |
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Year 7 |
$ 92,240.54 |
$ 97,857.99 |
$ 5,617.45 |
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Year 8 |
$ 95,007.76 |
$ 100,793.73 |
$ 5,785.97 |
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Year 9 |
$ 97,857.99 |
$ 103,817.54 |
$ 5,959.55 |
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Year 10 |
$ 100,793.73 |
$ 106,932.07 |
$ 6,138.34 |
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58499.68 |
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Cost of Degree |
$ 9,400.00 |
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$ 49,099.61 |
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You can see that my payback happens in about year 2. You can also see that if I work 10 more years, I am almost $50k ahead with this degree. I also calculated NPV, which is also an important indicator on if this is a good investment. So be sure to include NPV or IRR in your analysis.
OK, so back to your assignments. Many of you took your new salary and subtracted the cost of education. This is incorrect. You should have subtracted the difference between your current job, and your old job.
Several of you get military benefits. Yes, there is not the direct cost of education, but what about opportunity costs? In my case, I am giving up $50 per hour that I could be earning. I greatly appreciate those of you who are, or who have served in the military. You greatly deserve those education benefits you have earned. However, this does not excuse you from completing this part of the assignment. I either want to see calculation of opportunity costs, or provide some type of trade-off by enrolling in college.
Most of you did not try to calculate NPV. NPV tells me how much further ahead I am, based on some interest rate.
Since this is a Finance class, I expect that formulas be used to support your observations. When you don’t try to use the formulas, it is impossible for me to assess how well you understand this material.
As always, you are welcome to ask questions before an assignment is due so I can try to help you.
