Where (Wu - Ws) stand for the earnings differential between a university (subscript u) and a high school graduate (subscript s) and Cu for the costs of providing a university education. The formula presumes that the students take m years to obtain a university degree and that upon graduation they stay in the work force for n years. The benefits, then, are given by the present value of the incremental income, while the costs are given by the present value of the forgone income plus the present value of the cost of the education (tuition, books, etc.). This formula can be easily extended to a group of individuals.
This formula can be applied to project evaluation, but adjustments and certain simplifying assumptions are needed. First, it is convenient to assume that the benefits of a project are confined to students that graduate. Thus, even though non-graduates probably enhance their productivity by attending school, the data required to assess the incremental income are not usually available and are expensive to gather; it is simpler to assume that only graduates earn more income. Second, it is also convenient to assume that present income differentials hold throughout the life of the project. Income differentials do not remain constant over time. For example, the earnings gap between engineers and high school graduates in the United States is wider now than two decades ago. There is no guarantee that today's gap will remain constant through time, but since we do not know how that gap is likely to evolve, it is usually assumed that it will remain constant through time. The final simplifying assumption is that the two groups are similar in every respect but earnings that is they live just as long, they work just as long, they fall ill just as often, etc. Under these conditions, the benefits of an education project are equal to the number of graduate’s times the income differential per graduate projected for the remaining working life of the graduates.