You are asked to conduct a cost-benefit analysis

QUESTION

You are asked to conduct a cost-benefit
analysis of an early childhood education program. The first group of 50
students started the program in January 1990 and graduated in December 1991.
The second group of 100 students began the program in January 1991 and
graduated in December 1992. Each student begins the program at the age of 3.
(In an amazing coincidence, all of the children in the first group were born on
January 1, 1987, and all the children in the second group were born on January
1, 1988.) From records collected at the time, the average program costs were
$10,000 per student per year for both groups. The program runs for two years
for both groups. From follow-up data, compared to their control groups, both
groups of participants in the program earned $5,000 more in the year when they
were 18 years old, $6,000 more in the year when they were 19 years old, and
$7,000 more in the year when they were 20 years old. From age 21 and older,
participants= earnings are the same as in the control group. There are no other
benefits of the program. From the perspective of 1990 (when the project
started) and using a discount rate of 7%, find the discounted present value of
the costs and benefits of this program.

ANSWER:

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