Question

Answer question #4.

a science 3. Simmons' leadership team does some research and learns that if it doesn't build building, not only will it not be able to enroll 100 new graduate students but it might lose 100 raduste students to MCPHS. Calculate a) how much money they might lose if those 100 students don't attend Simmons and b) what percent of the total $65,500,000 in new have that lost revenue would represent. a) lost revenue if Simmons loses 100 graduate students (same tuition as in questions 1 and 2) has the opportunity to build a new science building. This building would be used by all students but would be especially attractive to students in science and health majors. It would allow them to enroll 100 more students per year in graduate programs (so there would be no need for more on campus housing since graduate studeats rarely live on campus). Using the information given below calculate the Income per Year (also known as the Annual Return), the Cost of Debt and the Profit or Loss if Simmons were to decide to build this building. b) % of total new money they have that this loss represents Existing Funds: $65,500,000 Debt Needed: $34,500,000 Total to Invest in new Building: $100,000,000 Interest Rate on Debt 45% Cost of Debt: 4. Based on your answers to questions 1, 2 and 3, would you choose to build the new science building or not? Explain your answer. 100 new science/health grad students per year Tuition: $37,500 Annual Return/Income per Year: Amount of Profit or Loss: 2. Instead of building a new science building, Simmons could instead invest the existing funds it has into its endowment. This could be used to fand new scholarships for graduate students. Use the following information to calculate the annual return on the money it has to invest and how many whole scholarships could be funded each year with this amount of money al ratios of the two companies below. Based on this ratio data, explain 5. Review the financi company you would be more likely to invest in. Explain how the information in each ratio w into your decision. Amount to invest: $65,500,000 Investment annual growth rate: 6.75% Company B 15.49% 26.31% Company A Annual Return/Income per Year: Tuition: $37,500 Number of whole scholarships that could be funded: 10.72% Return on Sales

Answer 1

Q1 Answer

Existing funds	$          6,55,00,000	Given
Debt Needed	$           3,45,00,000	Given
Total to invest in new building	$        10,00,00,000	Given
Interest rate on debt	4.50%	Given
cost of debt	$             15,52,500	Interest rate on debt * Debt Needed
New joinees per year	100	Given
Tution per year	$                      37,500	Given
Annual income per year	$             37,50,000	New joinees per year * Tution per year
Annual profit /loss	$             21,97,500	Annual income per year - cost of debt

Cost of debt would be annual interest we need to pay on the amount of debt taken that is Rate of interest * amount of debt

Annual income per year is how much we would earn from the amount we would invest that would be from the Tution fees from the 100 new students that would be joining us = Number of new Joinee * Tution fees per student

Annual profilt /oss would be difference of the amount we have invested and the income we are getting from that amount =

annual income - Cost of Debt

Q 2 =

Amount to invest	$   6,55,00,000.00	Given
investment annual growth rate	6.75%	Given
Annual income per year	$     44,21,250	Amount to invest * investment annual growth rate
Tution per year	$              37,500.00	Given
Number of whole scholarship that could be funded	118	Annual interest income per year / tution per year

Here we are planning to invest the amount and not take any debt. If we choose to invest that amount at some interest rate(given) then we would earn some interest from that amount which could be used to fund scholarship for certain students.

Hence - Annal income = this would be the Amount to invest * investment annual growth rate

Number of scholarship could be funded from the income we get = Annual interest income per year / tution per year ( rounding off to nearest decimal)

Q3 a )

In case simmons doesnt invest in the new building then it would loose some students = 100

Tution per year	$                      37,500
Number of graduate student	100
Revenue from 100 students	$             37,50,000

Hence the revenue lost would be - tution fees collected from 1 student * number of graduate students lost = - $3750000

(negative because its a loss)

Q3 b) %age of that money that this loss represents would be Amount to invest / revenue lost = 65500000 / 3750000 = 5.73 %

Q 4) Considering all 3 scenarios at once

that is - if simmons doesnt invest it would have a loss of - $3750000 (from part c),

BUT it could invest the amount of 65500000 at 6.75 % and earn 4421250 which could be used for funding 118 new students (from part b)

Hence It would loose 100 students BUT could give scholarship to 118 students = +118 - 100 = 18

Still get 18 more students every year

Profit = 18 * 37500 = 675000

SO IT SHOULD INVEST THE MONEY AT 6.75 % AND USE THAT MONEY TO GIVE SCHOLARSHIP TO NEW STUDENTS IF POSSIBLE

ELSE IT SHOULD GO WITH OPTION A = THAT IS BUILD A NEW BUILDING BY CREATING DEBT AND GET PROFIT OF       21,97,500 PER YEAR.