Is College Education Worthwhile?

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Is College Education Worthwhile?"

Transcription

1 Is College Education Worthwhile? Rashida Grant (rmg20) Zachary Easterling (zde) David Nowlin (dwn1) Sylvia Telesz (sat2) Department of Economics The University of Akron Fall 2008 Abstract The rising cost of college education in the past twenty years has been significant and has left students, parents and economists with the realization that the opportunity cost of pursuing undergraduate and graduate studies is high. Although the value of a college education increased in value in the 1980 s, the 1990 s witnessed a change in the labor market which amounted to a narrowing of the hourly wage gap between the college educated and those equipped with a high school diploma. (Barrow, 2005) The hourly wage gap between those with college education and those without, which had grown by 25 percentage points in the 1980 s, grew by only 10 1

2 percentage points in the 1990 s. 1 (Barrow, 2005) Although the fluctuation in wage difference can be the result of a decrease in demand for employees with a college education it can also be attributed to the increase in supply of college graduates. An analysis is crucial in determining the benefits and costs of pursuing and acquiring a degree. This paper examines the present and future value of a college education, or the lack of it, and how it affects human capital stock. Introduction Since increasing college costs, as well as foregone wages, consist of the commitment of completing a college education; it is necessary to examine if college education is a good investment. Certainly, factors of prestige, expectations of others, how much education is valued personally and what level of education was achieved by the students parents is influential in making the choice to pursue college. The returns of a college education can include the obvious form of attaining higher earnings, which economists typically interpret as a measure of the greater productivity of more educated individuals. 2 (Topel, 2004) But other benefits, such as being a more efficient and organized producer in the market as well as being personally more efficient, making better consumption decisions and having increased overall health as well as better access to healthcare all contribute as factors in choosing a college education. The most significant marginal benefit here includes the present value of the annual increase of life-time earnings which exist because a college degree is attained. The marginal costs which counterpoint the benefit, at least in the short-run, consists of the cost of four to five years of tuition and the loss of income and benefits due to not working full-time. Theoretical Overview There s an urban legend that Albert Einstein once said compounding is the most powerful force in the universe. Whether or not he really said it, it has become my financial motto. I strongly suggest you adopt it. (Sangrillo, 2006) In her article Sangrillo outlined some of the most prominent monetary economic ideas; she discussed compounding, discounting, present, and 1 Barrow, Lisa; Rouse, Cecelia Elena, 2005, Does College Still Pay? The Economists Voice, 2 Topel, Robert, 2004, The Private and Social Values of Education, Education and Economic Development, 2

3 future values. But in her entire commentary on financial freedom, interest, and wealth she missed the most important part; how to start. According to the Bureau of Labor Statistics hourly wages depend on industry of employment, type of position, and level of competence. In their 2006 survey of jobs in the Akron-Cleveland area, they outlined thousands of employment positions and quantified their worth by giving them average hourly rates. This excel model uses the following formula to calculate the net present value which is the present value of all future cash flows, discounted at the appropriate discount rate then summed together. The following formula depicts the process in which discounting and summation takes place. In this model, NPV is the accumulated value of all net income discounted by the average inflation rate. This formula also includes a cash flow at time zero (C 0 ). For college graduates this cash flow is actually a separate reverse annuity. This formula shows the initial outflow for a student working on a bachelor s degree. Students working on advanced degrees would extend loan amounts over seven years. C 0 = L 1 *(1+r) 5 + L 2 *(1+r) 4 + L 3 *(1+r) 3 + L 4 *(1+r) 2 + L 5 *(1+r) Where L i is the annual amount borrowed. Payments are made on the loan by both bachelors and master s degree holders in the following manner. NLA = {GLA -[(GI * 0.08) (GLA * )]} New net loan amount NLA is equal to the residual monies left over from a payment derived from 8% of total Gross Income after paying 4.21% interest on a federal student loan subtracted from the previous gross loan amount. 3

4 Literature Review It is not surprising to see the relationship between higher earnings and education. There is usually a consensus that college remains a good investment. While the research surveyed has focused on college education specifically, it is evident a common thread exists between individuals with focus and determination and higher life time earnings. It can be inferred that individuals who pursue college are more focused and determined than those who do not choose that route. Education creates positive externalities which can be passed as a benefit to future employers as well as peers and personal relationships. Topel (2004) argues that while the most studied benefit is higher earnings, there exist intangible benefits such as being a more efficient parent who makes better use of producing his or her own child s human capital or that person A, for instance, may benefit from person B s schooling by making person A more productive. It appears that the efficiency of an educated person may influence family members as well as peers, in addition to higher efficiency in the workplace, because the effect of an education on an individual is internalized by others. Trostel (2007) maintains that the fiscal impacts on college attainment reveal that college students generally pay much more in taxes than those not going to college. 3 Since government expenditures are less for college graduates than for individuals without a college education, that is, total government spending per college degree is negative, 4 (Trostel, 2007) this in addition to increased productivity reveals that college education not only pays for itself, but increases standard of living. Because higher earnings genuinely reflect the skills learnt in school, wage comparisons across education and age levels are likely to yield reliable estimates of the benefits of schooling. 5 Method 3 Trostel, Philip A., 2007, The Fiscal Impacts of College Attainment, New England Public Policy Center, Federal Reserve Bank of Boston, 4 Ibid. 5 Levin, Henry; Belfield, Clive; Muennig, Peter; Rouse, Cecelia, 2007, The Costs and Benefits of an Excellent Education for All of America s Children, Columbia University, 4

5 Using the Consumer Price Index provided by the Bureau of Labor Statistics and averaging inflation from 1990 to 2008, research has shown that the mean inflation during this period is 2.94%. As the discount rate, this will be used to appropriately reduce future cash flows in order to measure the expected salary of several entry level positions against the expected salary of a college graduate in nominal terms. As a high school graduate there are several main fields of employment that are open. This paper will use the six main fields: clerical, data processing, factory labor, fast food/counter sales, retail, and non-commission sales as proxies for non-college education employment. College education will be measured by a lump-sum salary which will be dynamic in the accompanying spreadsheet. According to Ken Abosch, the head of Hewitt Associate's compensation practice, the average salary increase in 2008 was 3.8% expected to rise to only 3.9% in Using this information the excel model will show that indeed it is not worthwhile to attend college on a 12 year horizon. And while nominal annual payment for a college graduate is as much as three times that of an entry level worker, the debt incurred while going to college makes a short term look at higher education very bleak. Using the BLS information, entry level clerical workers were given an average starting salary of $9.83, $10.40 for data processing, and $14.18 for factory labor. Fast food/counter sales earned the least taking home only $7.62 an hour, retail sales was second from the bottom making only $9.70, and non-commission sales positions earned the most averaging $19.94 per hour. These non college graduates were also given a maximum hourly rate for their different employment positions. In this model it is possible for these entry level workers to top stop, reaching a plateau of earning. For the college graduate, undergraduate expenses were based on a $5000 semester, which included $500 in supplies, outlined as books, computer programs, and lab expenses. This is represented in the model as college expenses (Annual). Expenses for college were expected to rise 8 % until graduation. After graduation this model also includes Masters Level education, adding 20% to the base college expense. Data The net present value model, the sum of all the future cash flows discounted back at the appropriate discount rate then summed together, reveals that the present value of a bachelors degree, assuming that the initial salary is $34,000 and retirement age is 67, is $2,108,935.14; future value would be $8,286, The compounding nature of the discount rate severely reduces the actual value of a dollar at this point on a timeline. The net present value of a master s degree assuming an initial salary of $47,900 and the same retirement age would be 5

6 $2,574, The future value of these dollars would be $10,598, Again, the compounding nature of a discount rate cuts the future value into approximately one quarter. As for student loans, this financial model reveals that depending on the initial salary, the expected payback period can be shortened or lengthened drastically. A prospective bachelor would expect to pay back college loans in less than 10 years. In reality, the combination of increasing tuition costs during college with compounded interest on unpaid loan amounts will extend the pay back period to just under 25 years. True costs of the loan become $61, in principle and $45, in interest for a 24 year total of $106, Master grads fair slight better owing a total of $180,914.90; earning $84, in interest and $96, in principle loan amounts, paid back in only 27 years. The increased initial salary of a worker with a master s degree allows them to pay back their more expensive loan in less time because of their ability to apply more money against their principle loan amount. Coming out of college a graduate entering the work force with a bachelor s degree will expect to immediately earn more than clerical workers, data processors, fast food/counter sales, and retail workers that all have five years of job experience. Unfortunately due to their late start, bachelors degree holders must wait 12 years to overtake non-commission sales workers and 20 years to earn more than factory laborers. Those with master s degrees are immediately rewarded; earning more than five of the six categories immediately upon entering the work force. They will surpass the non-commission sales agents the following year. Overall lifetime earnings for college students are slightly convoluted based on the idea of lost revenue stemming from a late entry into the work force. Not only do college students have to pay back hundreds of thousands of dollars in student loans, they must also contend with being at least five years behind in the work force. All workers who enter the labor market immediately upon graduating high school have some positive cash flow. The opportunity cost of attending a college or university for a worker is foregoing the first five to seven years of fruitful employment. Assuming lost income from working at a retail sales position, it will take 30 years for someone with a bachelor s degree to surpass the accumulated earnings of a clerical worker. Including a discount rate into those calculations, that period is lengthened to 35 years. The following table describes additional earn back and discounted earn back time frames. Table 1: Total and Discounted Equal Earnings of College Graduates and Non-Graduates BA/BS Total Earnings BA/BS Discounted Earnings Master s Total Earnings Master s Discounted Earnings Clerical 30 Years 35 Years 30 Years 35 Years Data 30 Years 35 Years 30 Years 35 Years Processing Factory 45 Years 55 Years 40 Years 45 Years 6

7 Fast Food/ 20 Years 25 Years 25 Years 30 Years Counter Sales Retail Sales 25 Years 30 Years 25 Years 30 Years Non- Commission Sales 40 Years 50 Years 35 Years 45 Years Results While being limited to a 12 year horizon, the idea of going to college would not be favorable to most. College graduates start out in the workforce behind all other categories when looking at net present value. However when extrapolating the data out along the timeline the model shows that college truly is worth it in the end. Net present values of both the bachelors and masters degrees are higher than the net present values of any of the other categories. Not only do the higher salaries of college graduates lend themselves to be desirable; college graduates have more opportunities for investment, further increasing the gap between themselves and their nongraduate counterparts. Summary In constructing a time-line between high school graduates who attain employment upon graduation and college students who defer compensation to invest in an education, we hoped to gauge the efficiency of choices made relevant to factors such as the present value of salary, the net present value of income, future earnings and the ability to pay debt secondary to earnings potential. We used the discount rate of 2.94 percent, the average inflation rate from , to determine the present value of future cash flows or salary purchasing power. Annual raises were constructed at 3.9 percent. We used the initial salary figures of an Economics graduate with a Bachelor s degree at $34,000, and the initial salary of an Economics graduate with a Master s degree at $47,900, according to Bureau of Labor Statistics Data in 2006, as comparison against earnings made by high school graduates receiving salaries upon high school graduation. We found that, as with any investment, a college education requires the expense of time, cost and foregoing immediate earnings and delivers benefits of higher earnings potential due to increased productivity. Based on our future value calculations, a high school graduate employed in retail has the earning potential or a lifetime income of $829,000. Likewise, an Economics graduate with a bachelor s degree has a lifetime earning potential of $2.1 million and an Economics graduate with a Master s degree can potentially earn $2.57 million. 7

8 The value of focus, discipline, and determination defined within the parameters of education yields higher earnings and benefits than hard work alone. References Barrow, L., and C. E. Rouse Does college still pay? The Economists Voice 2, (4): 1-8. Levin, H., C. Belfield, P. Muennig, and C. Rouse The costs and benefits of an excellent education for all of America s children. Retrieved March 17, : Topel, R The private and social values of education. Education and Economic Development: Bureau of Labor Statistics. National Compensation Survey (1 December 2008). Bureau of Labor Statistics. Consumer Price Index - All Urban Consumers. US Department of Labor. _id=cusr0000sa0&output_view=pct_1mth (10 November 2008). Bureau of Labor Statistics. Occupational Employment Statistics. (6 December 2008). Dr. Al, Lee. Finding Percentages in Salary Increase for Payscale: Ask Dr. Salary. (6 December 2008). Sangrillo, Karen. All About Free Money, and How to Earn It. Bucks County Courier times, 5 November Trostel, P. A. The fiscal impacts of college attainment. US Department of Education. Federal Student Aid. ates jsp (3 December 2008). 8

Part 7. Capital Budgeting

Part 7. Capital Budgeting Part 7. Capital Budgeting What is Capital Budgeting? Nancy Garcia and Digital Solutions Digital Solutions, a software development house, is considering a number of new projects, including a joint venture

More information

College Loan Debt: Is It Worth It?

College Loan Debt: Is It Worth It? College Loan Debt: Is It Worth It? Lesson Overview In this lesson, students compare the benefits of a college education (which is primarily increased earning capacity) with the costs of borrowing to pay

More information

Income Sustainability through Educational Attainment

Income Sustainability through Educational Attainment Journal of Education and Training Studies Vol. 3, No. 1; January 2015 ISSN 2324-805X E-ISSN 2324-8068 Published by Redfame Publishing URL: http://jets.redfame.com Income Sustainability through Educational

More information

College: A Necessity Priced as a Luxury

College: A Necessity Priced as a Luxury College: A Necessity Priced as a Luxury Six Facts on College and the Middle Class May 2014 A Middle Class Job Does Not Get a Middle Class Life v Today, a middle class job increasingly does not support

More information

AGENDA ITEM 12. Action requested:

AGENDA ITEM 12. Action requested: AGENDA ITEM 12. SUMMARY OF: INCREASING COLLEGE ACCESS OR JUST INCREASING DEBT? A DISCUSSION ABOUT RAISING STUDENT LOAN LIMITS AND THE IMPACT ON ILLINOIS STUDENTS Submitted for: Summary: Information The

More information

En h a n c ed Ea r n i n g s a n d Ta x Revenues from a

En h a n c ed Ea r n i n g s a n d Ta x Revenues from a En h a n c ed Ea r n i n g s a n d Ta x Revenues from a University of Wisconsin-Whitewater Degree: A Synthetic An a ly s i s by Russ Kashian Fiscal and Economic Research Center University of Wisconsin

More information

Damage Estimation in Wrongful Termination Cases: Impact of the Great Recession

Damage Estimation in Wrongful Termination Cases: Impact of the Great Recession 29 March 2012 Damage Estimation in Wrongful Termination Cases: Impact of the Great Recession By Dr. Laila Haider and Dr. Stephanie Plancich 1 Introduction The recent financial crisis was marked by the

More information

Is a College Education Worthwhile?

Is a College Education Worthwhile? Is a College Education Worthwhile? Melanie Doychak Aniqa Feerasta Mathew Hoff Kelly North Marcus Phelps Computer Skills for Economic Analysis Dr. Steven Myers University of Akron Fall 2008 Abstract: This

More information

College graduates earn more money than workers with

College graduates earn more money than workers with The Financial Value of a Higher Education By Mark Kantrowitz Mark Kantrowitz is the founder and publisher of FinAid.org and author of FastWeb College Gold. Five years have passed since the U.S. Census

More information

It s Time to Save for Retirement. The Benefit of Saving Early and the Cost of Delay

It s Time to Save for Retirement. The Benefit of Saving Early and the Cost of Delay It s Time to Save for Retirement The Benefit of Saving Early and the Cost of Delay November 2014 About the Insured Retirement Institute: The Insured Retirement Institute (IRI) is the leading association

More information

SPECIAL REPORT. TD Economics GIVING IT THE OLD COLLEGE TRY ASSESSING THE RETURNS ON U.S. HIGHER EDUCATION

SPECIAL REPORT. TD Economics GIVING IT THE OLD COLLEGE TRY ASSESSING THE RETURNS ON U.S. HIGHER EDUCATION SPECIAL REPORT TD Economics GIVING IT THE OLD COLLEGE TRY ASSESSING THE RETURNS ON U.S. HIGHER EDUCATION Highlights Students (and parents) wondering whether it s worth taking on student debt to pursue

More information

A REVIEW OF PAYSCALE AND ITS COLLEGE EDUCATION ROI RANKINGS

A REVIEW OF PAYSCALE AND ITS COLLEGE EDUCATION ROI RANKINGS A REVIEW OF PAYSCALE AND ITS COLLEGE EDUCATION ROI RANKINGS January 2014 Kent Hill, Ph.D. Research Professor, Department of Economics; and Principal Research Economist, L. William Seidman Research Institute

More information

In this chapter, we build on the basic knowledge of how businesses

In this chapter, we build on the basic knowledge of how businesses 03-Seidman.qxd 5/15/04 11:52 AM Page 41 3 An Introduction to Business Financial Statements In this chapter, we build on the basic knowledge of how businesses are financed by looking at how firms organize

More information

Student Loan Market Trends Is College Worth It. Presenter: Kelly Savoie, Director Business Development April 2016

Student Loan Market Trends Is College Worth It. Presenter: Kelly Savoie, Director Business Development April 2016 Student Loan Market Trends Is College Worth It Presenter: Kelly Savoie, Director Business Development April 2016 Agenda This presentation is an overview of trends in the industry and the value of a college

More information

FRBSF ECONOMIC LETTER

FRBSF ECONOMIC LETTER FRBSF ECONOMIC LETTER 2014-13 May 5, 2014 Is It Still Worth Going to College? BY MARY C. DALY AND LEILA BENGALI Earning a four-year college degree remains a worthwhile investment for the average student.

More information

Chapter 11 Building Information Systems and and Managing Projects

Chapter 11 Building Information Systems and and Managing Projects 1 Chapter 11 Building Information Systems and and Managing Projects LEARNING TRACK 1: CAPITAL BUDGETING METHODS FOR INFORMATION SYSTEM INVESTMENTS Traditional Capital Budgeting Models Capital budgeting

More information

CHAPTER 5. Interest Rates. Chapter Synopsis

CHAPTER 5. Interest Rates. Chapter Synopsis CHAPTER 5 Interest Rates Chapter Synopsis 5.1 Interest Rate Quotes and Adjustments Interest rates can compound more than once per year, such as monthly or semiannually. An annual percentage rate (APR)

More information

Among the most important investment

Among the most important investment Employee Costs and Risks in 401(k) Plans The rapid growth of employer-sponsored 401(k) plans has been facilitated, in part, by the many advantages offered to participants. However, employees also may encounter

More information

Student Debt Being Smart about Student Loans

Student Debt Being Smart about Student Loans Insight. Education. Analysis. S e p t e m b e r 2 0 1 4 Student Debt Being Smart about Student Loans By Kevin Chambers During the 2008 crisis, total American household debt fell. The amount of money borrowed

More information

CHAPTER 4. The Time Value of Money. Chapter Synopsis

CHAPTER 4. The Time Value of Money. Chapter Synopsis CHAPTER 4 The Time Value of Money Chapter Synopsis Many financial problems require the valuation of cash flows occurring at different times. However, money received in the future is worth less than money

More information

e C P M 1 0 5 : P o r t f o l i o M a n a g e m e n t f o r P r i m a v e r a P 6 W e b A c c e s s

e C P M 1 0 5 : P o r t f o l i o M a n a g e m e n t f o r P r i m a v e r a P 6 W e b A c c e s s e C P M 1 5 : P o r t f o l i o M a n a g e m e n t f o r P r i m a v e r a P 6 W e b A c c e s s Capital Budgeting C o l l a b o r a t i v e P r o j e c t M a n a g e m e n t e C P M 1 5 C a p i t a l

More information

Financial Terms & Calculations

Financial Terms & Calculations Financial Terms & Calculations So much about business and its management requires knowledge and information as to financial measurements. Unfortunately these key terms and ratios are often misunderstood

More information

Understand the relationship between financial plans and statements.

Understand the relationship between financial plans and statements. #2 Budget Development Your Financial Statements and Plans Learning Goals Understand the relationship between financial plans and statements. Prepare a personal balance sheet. Generate a personal income

More information

The Economists Voice

The Economists Voice The Economists Voice Volume 2, Issue 4 2005 Article 3 Does College Still Pay? Lisa Barrow Cecilia Elena Rouse Summary Since the mid-1990s college tuition costs have risen quickly while the rate of increase

More information

Chapter 2 Applying Time Value Concepts

Chapter 2 Applying Time Value Concepts Chapter 2 Applying Time Value Concepts Chapter Overview Albert Einstein, the renowned physicist whose theories of relativity formed the theoretical base for the utilization of atomic energy, called the

More information

Selecting the Mortgage Term: How to Compare the Alternatives

Selecting the Mortgage Term: How to Compare the Alternatives Currently, 15-year mortgages are available at more attractive rates than 30-year terms, but they also entail higher monthly payments. Which is better? A look at the analysis. Selecting the Mortgage Term:

More information

The Return on a Bachelor's Degree

The Return on a Bachelor's Degree No. 32 September 2005 ISSN 1708-9697 (PDF) 28-2765A The Return on a Bachelor's Degree Introduction Comparisons of the incomes of two individuals with different levels of education generally show that the

More information

Social Security Fundamentals

Social Security Fundamentals Social Security Fundamentals Guidelines for making well-informed decisions There s Wealth in Our Approach. When it comes to thinking about the part Social Security plays in your retirement plan, most of

More information

- centred on human factors (ie. ergonomics, desire to have a new computer system) - Are there unused computer terminals in the company now?

- centred on human factors (ie. ergonomics, desire to have a new computer system) - Are there unused computer terminals in the company now? Feasibility and Cost-Benefit Analysis Feasibility Operational Feasibility - centred on human factors (ie. ergonomics, desire to have a new computer system) - Is the problem worth solving? - How do the

More information

Net present value is the difference between a project s value and its costs.

Net present value is the difference between a project s value and its costs. 1 2 Net present value is the difference between a project s value and its costs. We need to calculate the Present Value of future cash flows (discounted by the opportunity cost of capital) and subtract

More information

Chapter 12 Practice Problems

Chapter 12 Practice Problems Chapter 12 Practice Problems 1. Bankers hold more liquid assets than most business firms. Why? The liabilities of business firms (money owed to others) is very rarely callable (meaning that it is required

More information

rate nper pmt pv Interest Number of Payment Present Future Rate Periods Amount Value Value 12.00% 1 0 $100.00 $112.00

rate nper pmt pv Interest Number of Payment Present Future Rate Periods Amount Value Value 12.00% 1 0 $100.00 $112.00 In Excel language, if the initial cash flow is an inflow (positive), then the future value must be an outflow (negative). Therefore you must add a negative sign before the FV (and PV) function. The inputs

More information

A cost-benefit analysis of accounting undergraduate education

A cost-benefit analysis of accounting undergraduate education A cost-benefit analysis of accounting undergraduate education ABSTRACT Robert Schadrie St. Norbert College Matthew Van Lanen St. Norbert College Amy Vandenberg St. Norbert College Jason Haen St. Norbert

More information

Payment Options under Retirement Plans

Payment Options under Retirement Plans Payment Options under Retirement Plans by Allan P. Blostin Bureau of Labor Statistics Originally Posted: April 28, 2003 Under both defined benefit plans and defined contribution plans, employees are given

More information

State of Oregon. Executive Summary. June 22, 2006. M. Henry Robison and Kjell A. Christophersen

State of Oregon. Executive Summary. June 22, 2006. M. Henry Robison and Kjell A. Christophersen THE ECONOMIC CONTRIBUTION OF THE COMMUNITY COLLEGES OF OREGON State of Oregon Executive Summary M. Henry Robison and Kjell A. Christophersen HIGHLIGHTS Students enjoy an attractive 19% annual return on

More information

Chapter 22: Borrowings Models

Chapter 22: Borrowings Models October 21, 2013 Last Time The Consumer Price Index Real Growth The Consumer Price index The official measure of inflation is the Consumer Price Index (CPI) which is the determined by the Bureau of Labor

More information

Preparing a Successful Financial Plan

Preparing a Successful Financial Plan Topic 9 Preparing a Successful Financial Plan LEARNING OUTCOMES By the end of this topic, you should be able to: 1. Describe the overview of accounting methods; 2. Prepare the three major financial statements

More information

11 PERFORMING FINANCIAL ANALYSIS

11 PERFORMING FINANCIAL ANALYSIS 11 PERFORMING FINANCIAL ANALYSIS 11.1 Introduction When planning an energy efficiency or energy management project, the costs involved should always be considered. Therefore, as with any other type of

More information

Capital Investment Analysis and Project Assessment

Capital Investment Analysis and Project Assessment PURDUE EXTENSION EC-731 Capital Investment Analysis and Project Assessment Michael Boehlje and Cole Ehmke Department of Agricultural Economics Capital investment decisions that involve the purchase of

More information

BUSINESS BUILDER 7 HOW TO ANALYZE PROFITABILITY

BUSINESS BUILDER 7 HOW TO ANALYZE PROFITABILITY BUSINESS BUILDER 7 HOW TO ANALYZE PROFITABILITY zions business resource center 2 how to analyze profitability Although pride of ownership and career satisfaction are healthy goals, generating profit is

More information

Saving For Retirement? Start by Paying Off Your Credit Cards

Saving For Retirement? Start by Paying Off Your Credit Cards Saving For Retirement? Start by Paying Off Your Credit Cards David Blanchett, CFA, CFP Head of Retirement Research Morningstar s Investment Management division August 16, 2012 Introduction Credit cards

More information

Financial advisors are asked to assist their clients in

Financial advisors are asked to assist their clients in Which Would You Choose: Funding Retirement or Paying Off Consumer Debt? By James M. Grayson, Ph.D.; Peter M. Basciano, Ph.D.; and Christopher L. Cain, J.D., Ph.D., CFA EXECUTIVE SUMMARY Paying off consumer

More information

EXAM 2 OVERVIEW. Binay Adhikari

EXAM 2 OVERVIEW. Binay Adhikari EXAM 2 OVERVIEW Binay Adhikari FEDERAL RESERVE & MARKET ACTIVITY (BS38) Definition 4.1 Discount Rate The discount rate is the periodic percentage return subtracted from the future cash flow for computing

More information

THE PROJECTED ECONOMIC AND FISCAL IMPACTS OF A TENNESSEE HISTORIC REHABILITATION INVESTMENT INCENTIVE

THE PROJECTED ECONOMIC AND FISCAL IMPACTS OF A TENNESSEE HISTORIC REHABILITATION INVESTMENT INCENTIVE THE PROJECTED ECONOMIC AND FISCAL IMPACTS OF A TENNESSEE HISTORIC REHABILITATION INVESTMENT INCENTIVE February 2014 Prepared by: Economic Impact Group, LLC. Copyright 2014 Economic Impact Group, LLC. EXECUTIVE

More information

Vol. 2, Chapter 4 Capital Budgeting

Vol. 2, Chapter 4 Capital Budgeting Vol. 2, Chapter 4 Capital Budgeting Problem 1: Solution Answers found using Excel formulas: 1. Amount invested = $10,000 $21,589.25 Compounding period = annually Number of years = 10 Annual interest rate

More information

CE Entrepreneurship. Investment decision making

CE Entrepreneurship. Investment decision making CE Entrepreneurship Investment decision making Cash Flow For projects where there is a need to spend money to develop a product or establish a service which results in cash coming into the business in

More information

Accounting Building Business Skills. Interest. Interest. Paul D. Kimmel. Appendix B: Time Value of Money

Accounting Building Business Skills. Interest. Interest. Paul D. Kimmel. Appendix B: Time Value of Money Accounting Building Business Skills Paul D. Kimmel Appendix B: Time Value of Money PowerPoint presentation by Kate Wynn-Williams University of Otago, Dunedin 2003 John Wiley & Sons Australia, Ltd 1 Interest

More information

The Economic Value of the Frederick County, Maryland, Public School System: Dollars & Cents and Beyond

The Economic Value of the Frederick County, Maryland, Public School System: Dollars & Cents and Beyond The Economic Value of the Frederick County, Maryland, Public School System: Dollars & Cents and Beyond March 2015 Prepared by: Table of Contents Executive Summary 3 Introduction 4 Frederick County Overview

More information

The Cost of Capital, and a Note on Capitalization

The Cost of Capital, and a Note on Capitalization The Cost of Capital, and a Note on Capitalization Prepared by Kerry Krutilla 8all rights reserved Introduction Often in class we have presented a diagram like this: Table 1 B B1 B2 B3 C -Co This kind of

More information

Assist. Financial Calculators. Technology Solutions. About Our Financial Calculators. Benefits of Financial Calculators. Getting Answers.

Assist. Financial Calculators. Technology Solutions. About Our Financial Calculators. Benefits of Financial Calculators. Getting Answers. Assist. Financial s Technology Solutions. About Our Financial s. Helping members with their financial planning should be a key function of every credit union s website. At Technology Solutions, we provide

More information

On March 11, 2010, President Barack

On March 11, 2010, President Barack U.S. Department of Commerce International Trade Administration Introduction Exports Support American Jobs Updated measure will quantify progress as global economy recovers. On March 11, 21, President Barack

More information

2016 TRADITIONAL DEBT MANAGEMENT PROGRAM INFORMATION AND INSTRUCTIONS

2016 TRADITIONAL DEBT MANAGEMENT PROGRAM INFORMATION AND INSTRUCTIONS South Hall, Suite 2200 (734) 764-5289 Ann Arbor, MI 48109-3091 fax: (734) 763-7761 2016 TRADITIONAL DEBT MANAGEMENT PROGRAM INFORMATION AND INSTRUCTIONS The University of Michigan Law School is committed

More information

Chapter 21: Savings Models

Chapter 21: Savings Models October 18, 2013 Last Time A Model for Saving Present Value and Inflation Problems Question 1: Suppose that you want to save up $2000 for a semester abroad two years from now. How much do you have to put

More information

CHAPTER 1. Compound Interest

CHAPTER 1. Compound Interest CHAPTER 1 Compound Interest 1. Compound Interest The simplest example of interest is a loan agreement two children might make: I will lend you a dollar, but every day you keep it, you owe me one more penny.

More information

The Value of A College Degree

The Value of A College Degree TUESDAY JULY 5, 2011 Education Michael Greenstone, Director, The Hamilton Project Adam Looney, Senior Fellow, Economic Studies The Hamilton Project JUNE 25, 2011 As the college class of 2011 graduates

More information

Capital Budgeting OVERVIEW

Capital Budgeting OVERVIEW WSG12 7/7/03 4:25 PM Page 191 12 Capital Budgeting OVERVIEW This chapter concentrates on the long-term, strategic considerations and focuses primarily on the firm s investment opportunities. The discussions

More information

MAT116 Project 2 Chapters 8 & 9

MAT116 Project 2 Chapters 8 & 9 MAT116 Project 2 Chapters 8 & 9 1 8-1: The Project In Project 1 we made a loan workout decision based only on data from three banks that had merged into one. We did not consider issues like: What was the

More information

Volume URL: http://www.nber.org/books/feld87-2. Chapter Title: Individual Retirement Accounts and Saving

Volume URL: http://www.nber.org/books/feld87-2. Chapter Title: Individual Retirement Accounts and Saving This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Taxes and Capital Formation Volume Author/Editor: Martin Feldstein, ed. Volume Publisher:

More information

Understanding Bank Ratios

Understanding Bank Ratios The Directors Education Series Understanding Bank Ratios Bankers Insight Group, LLC JEFFERY W. JOHNSON What Banking Factors Should be Measured? Asset Quality Capital Adequacy Earnings Liquidity 1 Asset

More information

Cost Benefits analysis

Cost Benefits analysis Cost Benefits analysis One of the key items in any business case is an analysis of the costs of a project that includes some consideration of both the cost and the payback (be it in monetary or other terms).

More information

Performance Review. Sample Company

Performance Review. Sample Company Performance Review Sample Company For the period ended 12/31/2017 Provided By Page 1 / 18 This report is designed to assist you in your business' development. Below you will find your overall ranking,

More information

Performing Net Present Value (NPV) Calculations

Performing Net Present Value (NPV) Calculations Strategies and Mechanisms For Promoting Cleaner Production Investments In Developing Countries Profiting From Cleaner Production Performing Net Present Value (NPV) Calculations Cleaner Production Profiting

More information

Interest Cost of Money Test - MoneyPower

Interest Cost of Money Test - MoneyPower Interest Cost of Money Test - MoneyPower Multiple Choice Identify the choice that best completes the statement or answers the question. 1. To determine the time value of depositing $100 in a savings account,

More information

Analysis of Investment Effectiveness and Economic Growth. Executive Summary. Prepared by: M. Henry Robison, PhD and Kjell A. Christophersen, PhD

Analysis of Investment Effectiveness and Economic Growth. Executive Summary. Prepared by: M. Henry Robison, PhD and Kjell A. Christophersen, PhD Economic Contribution of BC Colleges Analysis of Investment Effectiveness and Economic Growth Executive Summary Prepared by: M. Henry Robison, PhD and Kjell A. Christophersen, PhD HIGHLIGHTS BC College

More information

2014 STUDENT AFFORDABILITY REPORT

2014 STUDENT AFFORDABILITY REPORT 2014 STUDENT AFFORDABILITY REPORT January 2014 Prepared for the State Board of Higher Education Table of Contents Overview of Report... 1 Tuition and Mandatory Fees... 3 Total Estimated Student Cost...

More information

Section 8.1. I. Percent per hundred

Section 8.1. I. Percent per hundred 1 Section 8.1 I. Percent per hundred a. Fractions to Percents: 1. Write the fraction as an improper fraction 2. Divide the numerator by the denominator 3. Multiply by 100 (Move the decimal two times Right)

More information

New Study Points to the Critical Impact Texas Community Colleges Have on the Stateʼs Economy

New Study Points to the Critical Impact Texas Community Colleges Have on the Stateʼs Economy New Study Points to the Critical Impact Texas Community Colleges Have on the Stateʼs Economy State Realizes a 6.9% Rate of Return on Funds Invested in Community Colleges For Immediate Release Contact:

More information

Methodology For Calculating Damages in the Victim Compensation Fund

Methodology For Calculating Damages in the Victim Compensation Fund Methodology For Calculating Damages in the Victim Compensation Fund The calculation of presumed economic loss will generally follow the guidelines established in the original VCF. The Special Master will

More information

Guide to Financial Ratios Analysis A Step by Step Guide to Balance Sheet and Profit and Loss Statement Analysis

Guide to Financial Ratios Analysis A Step by Step Guide to Balance Sheet and Profit and Loss Statement Analysis Guide to Financial Ratios Analysis A Step by Step Guide to Balance Sheet and Profit and Loss Statement Analysis By BizMove Management Training Institute Other free books by BizMove that may interest you:

More information

Wellard Superannuation Better Tax Submission

Wellard Superannuation Better Tax Submission Justification for Superannuation Wellard Superannuation Better Tax Submission It is well documented that Australia has an aging population and consequently less workers will be available to support the

More information

Dick Schwanke Finite Math 111 Harford Community College Fall 2013

Dick Schwanke Finite Math 111 Harford Community College Fall 2013 Annuities and Amortization Finite Mathematics 111 Dick Schwanke Session #3 1 In the Previous Two Sessions Calculating Simple Interest Finding the Amount Owed Computing Discounted Loans Quick Review of

More information

The Tax Advantages of Annuities. How Tax Deferral and Guaranteed Lifetime Income Strategies Can Benefit All Consumers

The Tax Advantages of Annuities. How Tax Deferral and Guaranteed Lifetime Income Strategies Can Benefit All Consumers The Tax Advantages of Annuities How Tax Deferral and Guaranteed Lifetime Income Strategies Can Benefit All Consumers February 2011 Overview It has been well established that there are three key attributes

More information

Chapter 6. Learning Objectives Principles Used in This Chapter 1. Annuities 2. Perpetuities 3. Complex Cash Flow Streams

Chapter 6. Learning Objectives Principles Used in This Chapter 1. Annuities 2. Perpetuities 3. Complex Cash Flow Streams Chapter 6 Learning Objectives Principles Used in This Chapter 1. Annuities 2. Perpetuities 3. Complex Cash Flow Streams 1. Distinguish between an ordinary annuity and an annuity due, and calculate present

More information

Having cash on hand is costly since you either have to raise money initially (for example, by borrowing from a bank) or, if you retain cash out of

Having cash on hand is costly since you either have to raise money initially (for example, by borrowing from a bank) or, if you retain cash out of 1 Working capital refers to liquid funds used to purchase materials and pay workers. This is in contrast to long term capital such as buildings and machinery. Part of working capital management is cash

More information

ability to accumulate retirement resources while increasing their retirement needs; and

ability to accumulate retirement resources while increasing their retirement needs; and Consulting Retirement Consulting Talent & Rewards The Real Deal 2012 Retirement Income Adequacy at Large Companies RETIREMENT YOU ARE HERE About This Report This study assesses whether employees of large

More information

Chris Leung, Ph.D., CFA, FRM

Chris Leung, Ph.D., CFA, FRM FNE 215 Financial Planning Chris Leung, Ph.D., CFA, FRM Email: chleung@chuhai.edu.hk Chapter 2 Planning with Personal Financial Statements Chapter Objectives Explain how to create your personal cash flow

More information

( ) ( )( ) ( ) 2 ( ) 3. n n = 100 000 1+ 0.10 = 100 000 1.331 = 133100

( ) ( )( ) ( ) 2 ( ) 3. n n = 100 000 1+ 0.10 = 100 000 1.331 = 133100 Mariusz Próchniak Chair of Economics II Warsaw School of Economics CAPITAL BUDGETING Managerial Economics 1 2 1 Future value (FV) r annual interest rate B the amount of money held today Interest is compounded

More information

The Voya Retire Ready Index TM

The Voya Retire Ready Index TM The Voya Retire Ready Index TM Measuring the retirement readiness of Americans Table of contents Introduction...2 Methodology and framework... 3 Index factors... 4 Index results...6 Key findings... 7 Role

More information

A User s Guide to Indicator A9: Incentives to Invest in Education

A User s Guide to Indicator A9: Incentives to Invest in Education A User s Guide to Indicator A9: Incentives to Invest in Education Indicator A9 on incentives to invest in education brings together available information on educational investments and the benefits that

More information

Index Numbers ja Consumer Price Index

Index Numbers ja Consumer Price Index 1 Excel and Mathematics of Finance Index Numbers ja Consumer Price Index The consumer Price index measures differences in the price of goods and services and calculates a change for a fixed basket of goods

More information

Module 5: Interest concepts of future and present value

Module 5: Interest concepts of future and present value Page 1 of 23 Module 5: Interest concepts of future and present value Overview In this module, you learn about the fundamental concepts of interest and present and future values, as well as ordinary annuities

More information

ABOUT FINANCIAL RATIO ANALYSIS

ABOUT FINANCIAL RATIO ANALYSIS ABOUT FINANCIAL RATIO ANALYSIS Over the years, a great many financial analysis techniques have developed. They illustrate the relationship between values drawn from the balance sheet and income statement

More information

APPENDIX. Interest Concepts of Future and Present Value. Concept of Interest TIME VALUE OF MONEY BASIC INTEREST CONCEPTS

APPENDIX. Interest Concepts of Future and Present Value. Concept of Interest TIME VALUE OF MONEY BASIC INTEREST CONCEPTS CHAPTER 8 Current Monetary Balances 395 APPENDIX Interest Concepts of Future and Present Value TIME VALUE OF MONEY In general business terms, interest is defined as the cost of using money over time. Economists

More information

HAS THE RETURN TO INVESTING IN A COLLEGE EDUCATION DECLINED?

HAS THE RETURN TO INVESTING IN A COLLEGE EDUCATION DECLINED? HAS THE RETURN TO INVESTING IN A COLLEGE EDUCATION DECLINED? December 2013 Kent Hill, Ph.D. Research Professor, Department of Economics; and Principal Research Economist, L. William Seidman Research Institute

More information

GEORGIA PERFORMANCE STANDARDS Personal Finance Domain

GEORGIA PERFORMANCE STANDARDS Personal Finance Domain GEORGIA PERFORMANCE STANDARDS Personal Finance Domain Page 1 of 8 GEORGIA PERFORMANCE STANDARDS Personal Finance Concepts SSEPF1 The student will apply rational decision making to personal spending and

More information

Chapter 12. Aggregate Expenditure and Output in the Short Run

Chapter 12. Aggregate Expenditure and Output in the Short Run Chapter 12. Aggregate Expenditure and Output in the Short Run Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics Aggregate Expenditure (AE)

More information

Present Value (PV) Tutorial

Present Value (PV) Tutorial EYK 15-1 Present Value (PV) Tutorial The concepts of present value are described and applied in Chapter 15. This supplement provides added explanations, illustrations, calculations, present value tables,

More information

Chapter 02 How to Calculate Present Values

Chapter 02 How to Calculate Present Values Chapter 02 How to Calculate Present Values Multiple Choice Questions 1. The present value of $100 expected in two years from today at a discount rate of 6% is: A. $116.64 B. $108.00 C. $100.00 D. $89.00

More information

Personal Savings in the United States

Personal Savings in the United States Western Michigan University ScholarWorks at WMU Honors Theses Lee Honors College 4-27-2012 Personal Savings in the United States Samanatha A. Marsh Western Michigan University Follow this and additional

More information

New Estimates Of Personal Taxes In Consumer Expenditure Survey

New Estimates Of Personal Taxes In Consumer Expenditure Survey APRIL 2015 New Estimates Of Personal Taxes In Consumer Expenditure Survey Aaron E. Cobet The Consumer Expenditure Survey provides information on the buying habits of American consumers, their income, and

More information

ICI ReseaRCh Perspective

ICI ReseaRCh Perspective ICI ReseaRCh Perspective 1401 H Street, NW, Suite 1200 WashINgton, DC 20005 202/326-5800 www.ici.org march 2011 vol. 17, no. 3 WHAT S INSIDE 2 Introduction 5 Employee Demand for Pension Benefits 14 Why

More information

Chapter 002 Financial Statements, Taxes and Cash Flow

Chapter 002 Financial Statements, Taxes and Cash Flow Multiple Choice Questions 1. The financial statement summarizing the value of a firm's equity on a particular date is the: a. income statement. B. balance sheet. c. statement of cash flows. d. cash flow

More information

Introduction. Current methodology

Introduction. Current methodology Estimation of Software in the U.S. National Accounts: New Developments by Carol Moylan Bureau of Economic Analysis U. S. Department of Commerce Washington, DC 20230, USA Introduction In 1999, as part of

More information

What is a business plan?

What is a business plan? What is a business plan? A business plan is the presentation of an idea for a new business. When a person (or group) is planning to open a business, there is a great deal of research that must be done

More information

Your Guide to Profit Guard

Your Guide to Profit Guard Dear Profit Master, Congratulations for taking the next step in improving the profitability and efficiency of your company! Profit Guard will provide you with comparative statistical and graphical measurements

More information

Students will devise a savings plan for college.

Students will devise a savings plan for college. Lesson Description Students will analyze data to determine the relationship between level of educational attainment and weekly earnings and the relationship between level of educational attainment and

More information

Creating a Personal Financial Plan

Creating a Personal Financial Plan Creating a Personal Financial Plan Overview Setting goals are important and often used to measure success. However, simply setting goals does not ensure you will someday accomplish them. Achieving goals

More information

FIXED INCOME. Consistent Revenue A WIDER VIEW TM

FIXED INCOME. Consistent Revenue A WIDER VIEW TM FIXED INCOME Consistent Revenue A WIDER VIEW TM It s time for A WIDER VIEW. TM It s the view that says stocks, bonds, mutual funds, annuities, life insurance, every type of investment has to make a contribution

More information

ICI RESEARCH PERSPECTIVE

ICI RESEARCH PERSPECTIVE ICI RESEARCH PERSPECTIVE 0 H STREET, NW, SUITE 00 WASHINGTON, DC 000 0-6-800 WWW.ICI.ORG OCTOBER 0 VOL. 0, NO. 7 WHAT S INSIDE Introduction Decline in the Share of Workers Covered by Private-Sector DB

More information

Land Purchase Analysis

Land Purchase Analysis Land Purchase Analysis With this program, the user can evaluate the economic return on a farmland purchase and calculate a maximum bid price The maximum bid price is the purchase price that allows the

More information