Week 2 Assignment Return on Investment

Develop a three- to five-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: Describe how and why you made the decision to pursue an MBA. In the description, include calculations of expenses and opportunity costs related to that decision.

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Part 2: Analyze your desired occupation. Determine how much compensation (return) you expect to earn and how long will it take to pay back the return on this investment. Use the financial formulas, Net Present Value (NPV), Internal Rate of Return (IRR), and Payback, provided in Chapter 6 of your text.The analysis should be comprehensive and reference specific examples from a minimum of two scholarly sources, in addition to your text.

The paper must be formatted according to APA.

I decided the best way to show you where some students have derailed is to use an actual example of my situation. I am an Ashford University 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, on top of a normal 3% projected increase. 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:
Books400Opportunity Cost 9000 Total Cost 9400 No  Degree With  Degree Profit Payback \$    75,000.00 \$        79,567.50 \$    4,567.50NPV\$50,422.48Year 1 \$    77,250.00 \$        81,954.53 \$    4,704.53IRR8.3%Year 2 \$    79,567.50 \$        84,413.16 \$    4,845.66Year 3 \$    81,954.53 \$        86,945.56 \$    4,991.03Year 4 \$    84,413.16 \$        89,553.92 \$    5,140.76Year 5 \$    86,945.56 \$        92,240.54 \$    5,294.98Year 6 \$    89,553.92 \$        95,007.76 \$    5,453.83Year 7 \$    92,240.54 \$        97,857.99 \$    5,617.45Year 8 \$    95,007.76 \$      100,793.73 \$    5,785.97Year 9 \$    97,857.99 \$      103,817.54 \$    5,959.55Year 10 \$  100,793.73 \$      106,932.07 \$    6,138.3458499.68
Cost of Degree \$    9,400.00 \$  49,099.61

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 both NPV and IRR in your analysis. OK, so back to your assignments. In the past, some students took the new salary and subtracted the cost of education. This is incorrect. They should have subtracted the difference between their current job, and their 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 either want to see calculation of opportunity costs, or provide some type of trade-off by enrolling in college. Be sure to try to calculate NPV and IRR. NPV tells me how much further ahead I am, based on some interest rate. IRR tells me the percentage rate of return on this investment is when compared to my cost of capital. 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.

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