Question

Show how you would estimate the net present discounted value of your college education, assuming an annual interest rate of 10%. Explain how you would calculate both the explicit and implicit costs of your degree, how much you expect it to increase your earning in future years, and how many years you will benefit from your degree. You do NOT have to actually calculate the present value, but show HOW you would do so. Explain your work.

Answer 1

The net present value of college education could be calculated keeping in mind the costs and benefits associated with the degree. Let's take into account the costs first. The costs paid at the time of admission like admission and tuition fee, books and other stationery will be taken as it is without discounting as they are paid in the present, the costs incurred every year will then be discounted at the interest rate of 10%. Each year there will be an expenditure on new books, gadgets such as laptops, tabs etc. , house rent, expenditure on extra workshops attended if any, travel expenses etc. The benefits one can expect are primarily the earnings with will be discounted from 4th year onwards if the college degree was for 3 years. This effect of college education on earnings should stay only till the first two years of the job. As soon as one changes the job , the effect on earnings is more of experience than college education. All these factors will be taken in account and the present value of college education will be calculated