Apply financial analysis to show that it can make financial sense to go back to

Question

Apply financial analysis to show that it can make financial sense to go back to school and get more advanced education Provide an analysis of the tangible and intangible benefits of quitting work to go back to college or university. Assumptions: Imagine that a 27 year old is thinking of going back to school full-time because there is a really great two year program that will open new doors for career advancement and offer more wages and benefits over time. Here is the relevant financial information to make your analysis. Your task is to determine which costs are relevant and should be included and under what terms it makes economic sense to go back to college: Application fees to a range of programs at various colleges and universities a cost of $500. Is this a sunk cost or should it be included in the financial analysis Admission exams written over the last few years at a cost of $500. Is this a sunk cost or should it be included in the financial analysis New computer and software required for program at $1,000 (one - time cost). Textbooks to take required courses $500 per year. Quit job currently paying $30,000 per year. Annual living expenses $20,000 per year, and this amount is the same not matter if the 27-year old is working or going to school. Tuition fees of $5,000 per year. Accreditation exam upon program completion of $1,000. Expected additional income of $10,000 per year (this equates to $40,000 per year) growing at 2% in real terms per year until retirement. Cost of personal loan at 5% Cost of student loan at 2% Horizon : working until 65 years of age. The first requirement is to offer one recommendation to solve the challenge of whether it pays to go back to school. The second requirement is to fully examine both the tangible and intangible benefits.

Explanation / Answer

Answer:

Application fees to a range of programs at various colleges and universities a cost of $500 should be included in financial analysis. It is not a sunk cost as we need to incur it once we have taken the decision to go to school/college rather working.

Admission exams written over the last few overs at a cost of $500 is sunk cost and it should not be included in our financial analysis. It is not the cost to be incurred to take decision to go to school/college. It has already been incurred.

Just by paying $ 7000 in starting , $5,500 at the end of one year, $1,000 and the end of two years it will give us $10,000 additional income to the rest of the life.( From year 27 to year 65) which will grow at the rate of 2% per year. It is recommended to go to school/college.

Tangible benefits:-

1. Income is increasing significantly.

2. Increased reputation.

3. Enhanced knowledge.

Intangible Benefits:-

1. Increased relationship with different people.

2. Able to bring-up children by sharing knowledge with them.

3. More success and peace in life.

Costs Year 0 Year 1 Year 2 Application Fees          500.00 Admission exam for past years (not relevant)                   -   New Computer and Software      1,000.00 Text Books (500 *2)          500.00       500.00 Annual living expenses(not relevant)                   -   Tuition Fee (5000 *2)      5,000.00    5,000.00 Accreditation exam program    1,000.00 Total      7,000.00    5,500.00    1,000.00

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