This is for one year only. In the following year, the 1% higher tuition portion of income requirement will eat from the asset base. Asset base will be reduced by 1%X 40/1000 = 0.04% every year of the academic years. This is insignificance in absolute terms, but the calculations should at least illustrate this.
I thought we’re calculating return requirement for the upcoming stage of the time horizon (in that example is for 4 years). Not for just literarily the next year.
We’re adjusting returns by inflation, not just increase expenses by inflation for one year and do the calculations. This is for preservation of assets base. What would be the case if all the expenses are tuition? We’ll adjust return by tuition increase not inflation. What if half the expenses are tuition: my approach is to adjust every component by its relevant proportionate annual increase; the approach in the answers I’ve seen is just to adjust for inflation.
That’s being said, and based on an example provided by a veteran like cpk, it seems that the simple answer is what they’re looking for.