!

"

!"#$%&'(&)('
!
"#$%&'(%)*#$: lease aLLempL Lhese quesLlons wlLhouL uslna a calculaLor, spreadsheeL, or oLher alds
as onlv pen and paper are permlLLed durlna Lhe acLual LesL.
Case
1he unlverslLv of CldLown, a research and Leachlna lnsLlLuLlon, has a LoLal enrolmenL of
approxlmaLelv 13,000 araduaLe and underaraduaLe sLudenLs ln 2007-08 across a ranae of dlsclpllnes,
lncludlna arLs and sclence, nurslna, buslness, enalneerlna, medlclne, and law. 1he sLudenL bodv ls
predomlnanLlv local wlLh a sLrona lnLernaLlonal complemenL of 2,000 sLudenLs. lnLernaLlonal
sLudenLs are lmporLanL Lo Lhe lnsLlLuLlon because Lhev pav beLween 2-3 Llmes Lhe fees of local
sLudenLs.
1he unlverslLv has recenLlv hlred a new uean Lo provlde experlenced leadershlp Lhrouah challenalna
hK
from Lhe 1op 100 unlverslLles llsL. 1he percelved drop ln educaLlonal quallLv has led Lo fewer
appllcaLlons (parLlcularlv from lnLernaLlonal sLudenLs), areaLer dlfflculLv aLLracLlna and reLalnlna
leadlna scholars and more dlfflculLv ln fundralslna Lo pav for new lnfrasLrucLure and research chalrs.
1he uean has hlred 2020 uellverv Lo analvse Lhe currenL slLuaLlon and supporL hls declslon-maklna
hK

1able 1: llnanclal summarv for 2007-08
+,-,#',! .!/)00)*#! 1*$%$! .!/)00)*#!
SLudenL fees 120 laculLv and research 173
CovernmenL fundlna 140 AdmlnlsLraLlon, sLudenL servlces,
malnLenance and oLher admln
100
lundralslna, lnvesLmenL lncome
and oLher lncome
40 Scholarshlps and bursarles 30


#"

!
2',$%)*#!3!
8ased on Lhe followlna charL and Lhe lnformaLlon provlded above, whaL chanae would vou expecL ln
h-2012?
CharL 1: 1oLal unlverslLv of CldLown enrolmenL pro[ecLlon, 2008-2012


a) 1he flnanclal slLuaLlon wlll remaln Lhe same
b) 1he flnanclal poslLlon wlll be worse
c) 1he flnanclal poslLlon wlll be beLLer
d) 1here ls noL enouah lnformaLlon Lo answer Lhe quesLlon
!
2',$%)*#!4!
Assume LhaL Lhe averaae local sLudenL fee ls 7,000.00 and Lhe averaae lnLernaLlonal sLudenL fee ls
16,000.00. lf Lhe unlverslLv of CldLown lncreased lnLernaLlonal sLudenL enrolmenL bv 30 and
reduced local sLudenL enrolmenL bv 10, whaL would Lhe neL flnanclal poslLlon be assumlna all oLher
cosLs and revenues remaln sLable?
a) 10.1 mllllon surplus
b) 120.3 mllllon surplus
c) 1.3 mllllon deflclL
d) 3.0 mllllon deflclL
15000 15000 15100
15300 15400

$"






!
2',$%)*#!5!
Assumlna a scallna facLor of 80 for faculLv and research, 40 for admlnlsLraLlon, and 100 for
scholarshlps, pro[ecL Lhe LoLal neL aalns/losses over Lhe nexL Lwo vears lf Lhe unlverslLv aLLracLs 3
more sLudenLs per vear. Assume Lhe raLlo of lnLernaLlonal and local sLudenLs remalns Lhe same as ln
2007-08.
a) 23.6 mllllon neL loss
b) 3.9 mllllon neL aaln
c) 3.9 mllllon neL loss
d) 28.6 mllllon neL loss


nC1L: d
sLudenLs admlLLed, cosLs
onlv ao up bv 90. Llkewlse, lf lncome from sLudenLs admlLLed were reduced bv 30,
cosLs would onlv fall 43.

1he uean ls conslderlna lnvesLlna ln a new proaramme or school Lo revlLallse unlverslLv of
CldLown-Lerm flnanclal poslLlon. Pe ls sure he can
ralse Lhe necessarv caplLal lnvesLmenL Lo cover upfronL cosLs Lhrouah aenerous donors, buL
ls aware LhaL runnlna a new school or proaramme mlahL lmpose a flnanclal burden. 1he
h
wanLs 2020 Lo deLermlne lf Lhls ls posslble.

1he vlce-rlnclpal for 8esearch ls lobbvlna sLronalv for a new mlcrobloloav laboraLorv and
Leachlna faclllLv LhaL wlll aLLracL Lop researchers Lo Lhe unlverslLv and creaLe capaclLv for
anoLher 200 sLudenLs. 1he uean, however, Lhlnks Lhe unlverslLv should develop a Lop-fllahL
lnLernaLlonal M8A proaramme wlLh a sLrona lnLernaLlonal componenL Lo bolsLer lLs world-
wlde repuLaLlon and aLLracL more lnLernaLlonal sLudenLs. CLher members of Lhe
hd
2 provldes more deLalls on Lhe opLlons.


%"


1able 2: ro[ecLlons for poLenLlal new proarammes

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lM8A 23 10,000 ? 20,000 13

3 63,000 240,000
Mlcrobloloav 120 7,000 80 13,000 18

6 43,000 400,000
CLher ? ? ? ? ? ? ? ?

2',$%)*#!6!
Pow manv lnLernaLlonal sLudenLs musL Lhe lM8A enrol ln order Lo aeneraLe enouah revenue Lo
break even?
a) 38
b) 49
c) 33
d) 48
!
2',$%)*#!7!
lf vou were advlslna Lhe uean on whlch new proaramme or proarammes Lo esLabllsh Lo pav off Lhe
debL as qulcklv as posslble, whaL lnformaLlon would vou need Lo make a recommendaLlon?
a) 1he currenL and pro[ecLed debL
b) 1he cosL and Llme lnvolved wlLh launchlna each proaramme opLlon, lncludlna Lhe cosL of anv
caplLal emploved
c) 1he pro[ecLed operaLlna cosLs and revenues assoclaLed wlLh each of Lhe proaramme opLlons
d) All of Lhe above
e) Cnlv b) and c)


&"


!*%+(,*-)'
'
1. Answer: b) 1he flnanclal slLuaLlon wlll be worse. We know Lhls Lo be Lhe case because Lhe
backaround sLlpulaLes LhaL lnLernaLlonal sLudenLs pav 2-3 Llmes Lhe LulLlon fees of local
sLudenLs. 1hus, Lhe sllahL lncrease ln Lhe LoLal number of sLudenLs (13,000 Lo 13,400) wlll noL
provlde enouah revenue Lo offseL Lhe decllne ln Lhe lnLernaLlonal sLudenL bodv, whlch falls
from 2000 Lo 1000 over Lhe flve vears presenLed ln Lhe araph.

2. Answer: c) 1.3 mllllon deflclL. 1o solve Lhe problem, flrsL noLe LhaL Lhe unlverslLv has
13,000 LoLal sLudenLs, of whlch 2000 are lnLernaLlonal. 1hls leaves 13,000 local sLudenLs. 1he
problem seLs ouL a 30 lncrease ln lnLernaLlonal sLudenLs, whlch can be calculaLed bv
mulLlplvlna 1.30 x 2000 = 2600. 1he problem also noLes a 10 decrease ln local sLudenLs,
whlch can be calculaLed bv mulLlplvlna .10 x 13,000 = 1300, Lhen subLracLlna 1300 from Lhe
orlalnal local sLudenL populaLlon 13,000 1300 = 11,700. now LhaL we have Lhe correcL
populaLlons as seL ouL ln Lhe problem, we musL calculaLe Lhe sLudenL fees aeneraLed bv
Lhose populaLlons. 8ased on Lhe averaae fees provlded ln Lhe problem, LoLal local sLudenL
revenue ls calculaLed bv mulLlplvlna 11,700 x 7000 = 81.9 mllllon and LoLal lnLernaLlonal
sLudenL revenue ls calculaLed bv mulLlplvlna 2600 x 16000 = 41.6 mllllon. 1oLal sLudenL fee
revenue Lhen ls 81.9 mllllon + 41.6 mllllon = 123.3 mllllon. 1he problem sLaLes LhaL all oLher
revenues and cosLs remaln sLable, and Lhese are provlded ln Lhe case backaround. 1o
calculaLe, add sLudenL fees (123.3 mllllon) plus aovernmenL fundlna (140 mllllon) plus
fundralslna and oLher lncome (40 mllllon), and subLracL faculLv and research (173 mllllon),
admlnlsLraLlon (100 mllllon) and scholarshlps (30 mllllon). 1oLal revenues are 303.3 mllllon,
subLracL LoLal cosLs of 303 mllllon = 1.3mllllon deflclL.

3. Answer: a) 23.6 mllllon neL loss over Lwo vears. lf Lhe raLlo of lnLernaLlonal and local
sLudenLs ls held consLanL, Lhen Lhe onlv plece of lnformaLlon requlrlna manlpulaLlon on Lhe
revenue slde ls Lhe LoLal sLudenL fee flaure alven ln 1able 1 (120 mllllon). lor example, Lo
flnd Lhe LoLal expecLed revenue under vear 1 of Lhe 3 arowLh paLLern, mulLlplv 1.03 x 120
mllllon = 126 mllllon. lor vear Lwo, mulLlplv 1.03 x 126. A scallna facLor of 80 for faculLv
and research ls provlded, leadlna Lo a arowLh paLLern of .8 x 3 = 4. 1he arowLh paLLern
for admlnlsLraLlon ls based on a 40 scallna facLor, leadlna Lo .4 x 3 = 2, and 100 scallna
for scholarshlps leads Lo a 3 arowLh paLLern. 1he resulLs are besL expressed ln a Lable:

'"


CaLeaorv 8asellne ?ear 1 ?ear 2
8
e
v
e
n
u
e

SLudenL fees 120.0 126.0 132.3
CovernmenL
fundlna
140.0 140.0 140.0
lundralslna and
oLher
40.0 40.0 40.0
8*%90!&,-,#',! 5::;:! 5:<;:! 534;5!
C
o
s
L
s

laculLv and
research
173.0 182.0 189.3
AdmlnlsLraLlon 100.0 102.0 104.0
Scholarshlps 30.0 31.3 33.1
8*%90!(*$%$! 5:7;:! 537;7! 54<;6!

8*%90!
-3.0 -9.3 -14.1

1he LoLal neL aalns/losses are calculaLed bv addlna Lhe LoLal for vears 1 and 2 (-23.6 mllllon)
4. Answer: b) 49 lnLernaLlonal sLudenLs. 1o answer Lhls quesLlon, flrsL deLermlne Lhe cosLs
lnvolved ln runnlna Lhe proaram. Lach faculLv member ls pald 63,000 annuallv, and Lhere
are 13 faculLv members (13 x 63,000 = 973,000). 1here are also 240,000 ln admlnlsLraLlon
and oLher cosLs, brlnalna Lhe LoLal Lo 973,000 + 240,000 = 1.213 mllllon. Cn Lhe revenue
slde, we know Lhere are 23 local sLudenLs pavlna 10,000 each, for a LoLal of 230,000.
1herefore, lnLernaLlonal sLudenL revenues musL LoLal 963,000 ln order for Lhe proaramme
Lo break even. CalculaLe Lhls bv cross-
20,000 for Lhe sLudenL fees pald, and flnd 48.23 as Lhe answer. Slnce Lhe school cannoL
admlL one-quarLer of a sLudenL, Lhev wlll requlre 49 lnLernaLlonal sLudenLs Lo break even.

3. Answer: e) onlv b and c. 1o make an lnformed recommendaLlon of whlch proaramme or
proarammes Lo launch Lo pav off Lhe debL as qulcklv as posslble, vou would need Lo know
Lhe pro[ecLed operaLlna cosLs and revenues for each opLlon (c). ?ou would also need Lo
know how lona lL would Lake for each of Lhe opLlons Lo sLarL aeneraLlna LhaL revenue, and
how much lL would cosL Lo launch (lncludlna Lhe cosL of caplLal lf Lhe monev Lo supporL Lhe
launch were borrowed) (b). WlLh Lhls lnformaLlon ln hand, one could compare Lhe varlous
opLlons and deLermlne Lhe besL mlx Lo maxlmlse revenue aeneraLlon ln Lhe shorLesL amounL
of Llme. Whlle lL ls LempLlna Lo selecL answer d), ln facL Lhe level of currenL and pro[ecLed
debL ls noL a requlremenL Lo help Lhe uean declde on Lhe besL opLlon knowlna Lhe level of
debL wlll noL chanae Lhe amounL of revenue aeneraLed bv anv of Lhe proaramme opLlons,
whlch ls Lhe varlable of lnLeresL ln Lhls problem.