1. You are the CFO of a private college. You know that each student attends school for exactly 4 years. Education is expensive. It costs the school 20k per year per student to run the school, but tuition is only 19k. Effectively, you are losing 1k per student per year. You also know that alumni often give back to the school after graduation. Specifically, on average, students make a 10k donation to the school on their 20th anniversary of graduation. From strictly an NPV point of view, what is the total cash flow, total costs, discounted cash flows, NPV and IRR the school gets on EACH student. The schools discount rate is 6%. Is the school doing ok?
2. The school can either encourage graduates to give more. Specifically, they have an idea that will increase donations from alumni from 10k to 12k. How does this impact the NPV and ROI and the ROI? Is this a good plan?
3. Alternatively, the school can encourage alumni to give earlier. Rather than waiting 20 years, the school believes it can encourage alumni to make a 10k donation 10 years after graduation. How does this impact the key financial measures?
4. Which is the better plan? Ask to give more? Or ask to give earlier?