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