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Econ 223
Assignment 3
(September 27)
Purpose: Calculate the Net Present Value, Internal Rate of Return & mean and standard deviation of all possible holding period returns of a human capital investment for some member of your prototype family. Order information on your own Credit History so that it arrives in time for your "Purchases" assignment, Assignment 6. (If you find that you don't have a credit report, then find a friend and request a copy of her/his credit report.)
You should prepare and present your calculations in your Prototype Excel Worksheet, derived from the worksheet titled “Human Capital Calculations-Assignment #3” which you can obtain from the Prototypes folder in the FirstClass conference. Note you will need to copy this Template into your existing Prototype Worksheet – instructions follow below.
Resources: pp. 18-23 of BKH, "Human Capital I..." & Human Capital II Power Point Presentations, Chapter 4 of G&W & the Human Capital section of the term paper that you have decided to read.
Choose a person in your prototype family and calculate the Net Present Value (NPV), Internal Rate of Return (IRR) & mean & standard deviation of all possible holding period returns of an education or training decision that you think the individual might consider.
Begin with the Prototype Worksheet Template titled “Human Capital Calculations-Assignment #3” which you obtain from Prototypes folder in the FirstClass conference. Copy this entire worksheet into your Master Prototype Spreadsheet (using the same name “Human Capital Calculations”)
Note: To copy the “Human Capital Calculations” worksheet, first have both spreadsheets open (i.e.., open your Master Spreadsheet – this is the first worksheet you completed for Assignment 1 which currently has only one worksheet in it titled “Prototype Summary” – and the “Human Capital Calculations” spreadsheet). On the “Human Capital Calculations” spreadsheet, go to the bottom and right-click on the tab with the worksheet’s name (“Human Capital Calculations”). Select “Move or Copy”, then in the top box titled “To Book” click on the arrow until you see the name of your Master Prototype’s Spreadsheet. Then under the box titled “Before Sheet” select "(move to end)". Finally, click “ok” and the “Human Capital Calculations” worksheet will now be in your Master Prototype Spreadsheet just after the "Prototype Summary" worksheet. Save your Master Prototype Spreadsheet under the heading Master-Assign3-your first initial & last name.xls. For example, Ann would saver her Master Prototype Spreadsheet as Master-Assign3-awitte.xls.
To calculate NPV & IRR, you will need to develop projected earnings histories for your prototype. You can use the methodology we used to develop the projected earning histories for Sebastian with a high school degree & with a college degree or other information that allows you to develop a work history that is based on good information. Click here to obtain an article that gives you data that can provide a broad foundation for your projected earnings histories. Note: you can be creative & have the person making the human capital decision make multiple human capital decisions over the course of her working life or you can have your prototype take a few years off for a “time out”, including to raise a family. Put the earnings history in the appropriate place in the worksheet entitled Human Capital Calculations in your Master Prototype Spreadsheet named as indicated above.
Discuss briefly how you developed the earnings history (indicate sources) & how you obtained the NPV, IRR & mean & standard deviation of all possible holding period returns for the investment. Be sure to state clearly all of the assumptions you are making.
Upload
(1) brief discussion of how you obtained the NPV, IRR & mean & standard deviation of all possible holding period returns for the investment
(2) your Master Prototype Spreadsheet (which now contains a worksheet entitled Prototype Summary & a worksheet entitled Human Capital Calculations) containing your calculations of NPV, IRR & mean & standard deviation of all possible holding period returns for the investment to the Assignment 3 folder in the Econ223-Drop conference in FirstClass before class on September 27.
Presentation & Financial Advisor Work
Email Econ223-Ask Ann & Saundra by 5PM on September 27 at the latest to request the presenter or Financial Advisor role for this week. Your presentation will be on October 1. If we do not have a volunteer presenter & Financial Advisor by 5PM on September 27 we will assign students to presenter & advisor roles.
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© Saundra Gulley & Ann Dryden Witte, 2006
