Question

Suppose that college tuition and fees are also paying for a \college experience" (e.g. bowling alleys at the Student Center, nice landscaping, etc). If we fail to consider that tuition is not a pure investment expense, will the net present value of an investment in education be overstated or understated. Explain!

Answer 1

If we fail to consider that tuition is not a pure investment expense, then the net present value of the investment will be udnerstated.

This is because a pure investment expense doesnt consider any other value that we might derive from the product or service (in this case, college education) and only considers the pure monetary value. of course, there are many aspects of college experience which cant be calculated in monetary terms. As an example, this can be the experience of living with friends, the increase exposure to different people and culture and the broadening of horizons, or the availability of library, or nice dorm rooms or food etc. Since we are not considering these and only looking at monetary returns, the NPV is missing out on these and hence understating the value.