MET is operating under certain well-specified assumptions concerning tuition increases, future market conditions and rates of return on the fund. Under the MET economic model, tuition increases are expected to be only 7.3 percent annually, the annual rate of return on the pooled resources in the fund is assumed to be 9.75 percent, and Michigan economic conditions are generally assumed to continue along a stable path of growth.
The economist can judge the economic wisdom of MET as an investment using present value analysis. Economic theory and common sense suggests that if the cost of a project exceeds the discounted value of the future return then the project is questionable, at least on economic grounds.
Tuition costs for a four-year education beginning in 2006 are valued at $31,991. This figure is derived by taking the current average $9,000 tuition cost of a four-year education at 15 state public universities, and assuming that 7.3 percent annual tuition increases continue: $9,000 x (1.073)18 = $31,991
If the fund earns a 9.75 percent rate of return the present value of the investment can be determined as $5,994: (PV = $31,991/(1 + .0975)18. The present value of $5,994 is less than the $6,756 needed to invest in MET in 1988, and the $7,664 required last year. At $6,756 and a 9.75 percent rate of return, the investment would be economically justified only if the future receipt was at least $36,055. At $7,664 the future return would have to be at least $40,901. The investment's current cost exceeds the discounted present value of the future receipt, leading the economist to conclude that MET cannot be justified as an investment on economic grounds.
Present value analysis shows that MET cannot be justified on economic grounds at Central Michigan Eastern Michigan, Ferris State, Grand Valley State Lake Superior State Michigan Tech Northern Michigan, Oakland University Saginaw Valley, U of M-Dearborn, U of M-Flint Wayne State and Western Michigan. MET can be justified on economic grounds using present value analysis only at U of M-Ann Arbor and Michigan State University.
In-State Undergraduate Tuition and Fee Rates At Michigan Public Universities |
|||||
|
1985-86 |
1986-87 |
1987-88 |
1988-89 |
1989-90 |
Central Michigan |
1507 |
1569 |
1662 |
1828 |
2005 |
Eastern Michigan |
1501 |
1563 |
1656 |
1820 |
1994 |
Ferris State |
1671 |
1671 |
1749 |
1947 |
2133 |
Grand Valley |
1502 |
1566 |
1632 |
1794 |
2016 |
Lake Superior |
1455 |
1517 |
1608 |
1767 |
1920 |
Michigan State |
2133 |
2273 |
2737 |
3017 |
3258 |
Michigan Tech |
1797 |
1869 |
1996 |
2193 |
2391 |
Northern Michigan |
1447 |
1513 |
1576 |
1729 |
1881 |
Oakland |
1705 |
1767 |
1883 |
2065 |
2212 |
Saginaw Valley |
1628 |
1697 |
1783 |
1959 |
2131 |
U of M-Ann Arbor |
2409 |
2662 |
2883 |
3170 |
3463 |
U of M-Dearborn |
1757 |
1841 |
1995 |
2190 |
2404 |
U of M-Flint |
1472 |
1548 |
1700 |
1920 |
2104 |
Wayne State |
1971 |
1996 |
2123 |
2289 |
2526 |
Western Michigan |
1613 |
1679 |
1934 |
2104 |
2292 |
*As of August 16, 1989
Source: Department of Management and Budget
Central Michigan:
$8,020 X (1.073)18 = $28,508
PV = $28,508/(1.0975)18 = $5,342 < $7,664 required for MET
Eastern Michigan:
$7,976 X (1.073)18 = $28,351
PV = $28,351/(1.0975)18 = $5,312 < $7,664 required for MET
Ferris State:
$8,532 X (1.073)18 = $30,328
PV = $30,328/(1.0975)18 = $5,683 < $7,664 required for MET
Grand Valley:
$8,064 X (1.073)18 = $28,664
PV = $28,664/(1.0975)18 = $5,371 < $7,664 required for MET
Lake Superior:
$7,680 X (1.073)18 = $27,299
PV = $27,299/(1.0975)18 = $5,115 < $7,664 required for MET
Michigan State:
$13,032 X (1.073)18 = $46,324
PV = $46,324/(1.0975)18 = $8,680 > $7,664 required for MET
Michigan Tech:
$9,564 X (1.073)18 = $33,996
PV = $33,996/(1.0975)18 = $6,370 < $7,664 required for MET
Northern Michigan:
$7,524 X (1.073)18 = $26,745
PV = $26,745/(1.0975)18 = $5,011 < $7,664 required for MET
Oakland University:
$8,848 X (1.073)18 = $31,451
PV = $31,451/(1.0975)18 = $5,893 < $7,664 required for MET
Saginaw Valley:
$8,524 X (1.073)18 = $30,299
PV = $30,299/(1.0975)18 = $5,677 < $7,664 required for MET
U of M-Ann Arbor:
$13,852 X (1.073)18 = $49,238
PV = $49,238/(1.0975)18 = $9,226 > $7,664 required for MET
U of M-Dearborn:
$9,616 X (1.073)18 = $34,181
PV = $34,181/(1.0975)18 = $6,405 < $7,664 required for MET
U of M-Flint:
$8,416 X (1.073)18 = $29,915
PV = $29,915/(1.0975)18 = $5,605 < $7,664 required for MET
Wayne State:
$10,104 X (1.073)18 = $35,916
PV = $35,916/(1.0975)18 = $6,730 < $7,664 required for MET
Western Michigan:
$9,168 X (1.073)18 = $32,589
PV = $32,589/(1.0975)18 = $6,106 < $7,664 required for MET