Cost Benefit Analysis Paper Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Cost Benefit Analysis Paper Case Study Solution

Beneficiariesor impact categories

From the dollar standpoint; the proposal of wiping out all 1.5 trillion dollars in the student debt loan would be beneficial for the highest balance borrowers, as they would gain more from this proposal. There is a likelihood that they would be experiencing relief in terms of the significant reduction in the monthlypayments of the student loan. Those students whose household income is higher would also get larger benefits by freeing up more of their earnings for other purposes or to fulfill their secondary dreams. Therefore, those with debt from the graduate education particularly for high-paying professionals, including: businessman, lawyers and doctors would be benefited from the proposal. Additionally, the proposal would be beneficial for those students who are struggling hard and are torn between the re-payment of debt and odd jobs.Along with this, the proposal would help the government to boost the economy and improve the GDPby allowing students to form their own business venture, make investment in the business and save for retirement.

In addition to this, the beneficiaries of the proposal proposed by the ElizabethWarren would be the students whose household income is below than 100000 dollars. The proposal of the Warren tends to reduce the benefits for the families in the top group of income, particularly more than 250000 dollars. (who makes up about 5% of households).

Measurement indicators

There are various measurement indicators that could be used by the government, to assess and examine the success rate of the projects, which are discussed below:

Graduation rates

The success and feasibility of both the policies could be measured through assessing and evaluating the graduation rate of students who are attending the colleges.

Consumer spending

Another way of measuring the success of the policy is through examining the consumer spending pattern, when the students would have no obligation to pay off their debt, they would be able to spend more and improve their living standards.

Economic Growth

The government could assess the feasibility of the proposal through assessing the economic growth and evaluating if the policy provides an economic stimulus to the middle class or not, hence allowing them to increase their house purchases, helping in the startup of new business, making investment in businesses and contributing to the economic growth of the country.

Monetizing and Predicting Impacts

Benefits

The benefits of the both policies i.e. forgiving all 1.5 trillion dollars in student debt loan and Elizabeth Warren’s student debt loan amounted to $108000067800 and $216000135600 respectively. The benefits of both policies are listed below:

Savings for retirement.
Increased GDP, and
Improved earnings per year.

Costs

The costs of the both policies i.e. forgiving all 1.5 trillion dollars in student debt loan and Elizabeth Warren’s student debt loan, amounted to $37430 and $125000037430 respectively. The significant difference between the costs of both the proposals is primarily because of Warren’s investment plan for debt free colleges, with the hefty price tag of $1.25 trillion over 10 years, hence resulting in $125000000000 per year. The cost of the two proposals are listed below:

Investment in new debt free colleges.
Increase in the college charges (books, tuition fee and room and board)

Discounting, Net Present Value, and Sensitivity Analysis

Discount rate

A discount rate that is used in the wide range of the government oriented decisions includes regulatory cost benefitanalysis and projectanalysis. The most feasible and appropriate discount rate ranges between 3 percent and 7 percent, for the regulatory analysis. The net present value of the two proposals are discounted back with 4 percent.(DISCOUNTING FOR PUBLIC POLICY:THEORY AND RECENT EVIDENCE ON THE MERITS OF UPDATING THE DISCOUNT RATE, 2017).

Net present value

The net present value of both the proposalsare calculated by discounting the total value of the project with the discount rate; whereas the total values of the projectsarecalculated by subtracting the costs of the project from the benefits of the projects. The total values of both the proposals are discounted with 4 percent discount rate; hence the net present value of proposal one and proposal two are calculated as: 103,846,183,048 and $ 87,500,094,394, respectively.

Sensitivity analysis

The sensitivity analysis of both the proposals is done by taking three scenarios, in order toanalyze the effects on the proposals’ net present values. The three scenarios which havebeen taken are comprised of increase and decrease in discount rates, to assess the impact of the discount rates on the value of the proposals.

3% discount rate

With 3 percent discount rate; the total value of the proposal of wiping out all $1.5 trillion, is amounted to $ 104,854,398,417.Whereas, the net present value of the proposal proposed by Warren, would be $ 88,349,609,874.

5% discount rate

With 5 percent discount rate; the total value of the proposal of wiping out entire $1.5 trillion, is amounted to $102,857,171,781.Whereas, the net present value of the proposal proposed by Warren would be: $ 86,666,760,162.

7% discount rate

With 7 percent discount rate; the total value of the proposal of wiping out all $1.5 trillion is amounted to $ 100,934,607,822.Whereas, the net present value of the proposal proposed by Warren would be: $ 85,046,820,720.

Recommendations

After taking into consideration the quantitative and qualitative analysis; the most feasible proposal would be Alternative 01, i.e. wiping out entire $1.5 trillion on the basis of the fact that the net present value of the proposal is greater than Warren’s proposal. Furthermore, the net present value of Warren’s proposal is lower due tothe huge investment required for the formation of debt free colleges. Forgiving the entire 1.5 trillion dollars’loan would help in stimulating the growth of the US economy, and would encourage the investment in existing business and formation of new businesses. Another strong ground for recommending this proposal is that it would lead to an improvedGDP of the country by up to 108 billion dollars per year, on the average for the period of 10 years; following the cancellation of debt.In addition to this, the students would be able to save some portion of their earnings for their retirement in the future. Also, it would lead to the creation of more employment opportunities for the studentsby allowing themto earn approximately $60000 on their first job out of college.........................................

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