Capital Investment Analytical Techniques in Higher Education: A Factor in the Cost Growth?

• Published in: Journal of managerial issues Vol. 29; no. 4; pp. 414 - 427
• Main Authors: Goldberg, Robert S., Prottas, David J.
• Format: Journal Article
• Language: English
• Published: Pittsburg Pittsburg State University 22-12-2017; Pittsburg State University - Department of Economics; Pittsburg State University, Department of Economics
• Subjects: Capital assets; Capital budgeting; Capital investments; Capital structure; Cash flow; Cash flow forecasting; Data analysis; Discount rates; Discounted cash flow; Economic aspects; Education; Education policy; Equity; Financial analysis; Higher education; Higher education costs; Internal rate of return; Master of business administration degree; Net present value; Nonprofit organizations; Payback periods; Profits; Securities analysis; Student loans; Surveys; Value analysis; United States > US
• ISSN: 1045-3695; 2328-7470

Finance professionals in large for-profit organizations overwhelmingly evaluate alternative capital investment options by performing net present value (NPV) analysis using the weighted average cost of capital (WACC) as the discount rate. The use of less rigorous techniques can result in overinvestment and corresponding cash flow pressures. This study reviews the analytical techniques taught in textbooks used in masters programs oriented toward not-for-profit students with traditional MBAs and finds WACC analysis is not widely taught. A survey of 69 higher education professionals was conducted and this study reports on which techniques are used, perceived obstacles to more rigorous quantitative analytical techniques, and differences between private and public institutions. The study concludes that practices with respect to analyzing capital investment decisions in higher education would tend to lead to overinvestment and makes recommendations as to how WACC analysis could be applied, even within the context of higher education.