1. Executive Summary
This paper reports on a distance learning project in India. Free Cash Flows (FCFs) for the first ten years and the terminal value (TV) for the operations thereafter are estimated. The investment opportunity itself is valuated using the Internal Rate of Return (IRR) and the Net Present Value (NPV) methods. We are using the Weighted Average Cost of Capital (WACC) to calculate the discount rate for the NPV computation. A software is used to simulate the NPV as a function of several parameters that are varied within a range of likely real market conditions. The resulting probability distribution for the NPV together with the above-market IRR indicates that the project is highly lucrative.
2. Introduction and Market Environment
Distance education programs have won a significant part of share in the education market. In 2001, 56% of degree granting institutions in the USA already offered distance education programs while 12% where planning to offer them in the next three years . Over 90% of these programs were internet based . Students use distance education primarily because of convenience, flexibility, and both low opportunity and effective costs. Reasons against distance education are lack of reputation and network, and the perceived low quality of the faculty.
Distance learning is particularly well suited for emerging market countries, such as India, where the relatively poor rural population historically had no access to higher education but today, state of the art internet infrastructure is becoming readily available almost everywhere at low or even no cost. Since distance learning has the potential to rapidly improve the education level in such emerging economies it has attracted the interest of both venture capitalists and policy make ...