Assignment -
SCENARIO - "A 4-year, private, nonsecular college in Tennessee that is suffering from declining enrollments has decided there is an unmet demand for graduate education in Human Resource Management (HRM). The college believes it has an opportunity to counter the enrollment decline by offering a program to in HRM.
The decision it is trying to make is whether or not it would be more beneficial to offer a Masters degree in HRM (39 credit hours) or a Graduate Certificate (18 hours).
The CFO has urged the college to use NPV analysis to evaluate the financial implications of this decision."
ASSUMPTIONS included in the case
"The tables on tab 2 reflect the college's best estimates for the initial or Year 0 (i.e. start-up) assumptions, and for Year 1 assumptions. The college has factored in estimated development and startup costs, and initial enrollment and attrition rates for each option.
Assumptions for rates of change in each of these categories are reflected in the tables in the 2nd tab (hint: look at the formulas).
The college assumed that the rate of tuition increase for the last few years would apply for this analysis. The per-credit tuition cost is the same for each program, but the degree program requires more than twice the number of credit hours.
The college also assumed that the program would not generate any additional costs other than the startup costs. "
INSTRUCTIONS & QUESTIONS
Q1. Using the data in the two charts on tab 2, find the answers to the following 3 questions from the published case. You may create your own table from the template used in the AS 7.3.2. video or use the more expedient Excel NPV function (see AS video 7.4) :
a) What was the NPV value associated with the certificate program (a)?
b) What was the NPV value associated with the complete degree program (b)?
c) Which of the examined academic programs was recommended as a viable contender based on a comparison of the calculated NPV values - and WHY?
Q2. Identify the assumptions embedded in the charts of tab 2 for years 2 - 7:
Enrollment growth rate
Attrition rate
Rate of change in tuition
Q3. What assumption from the five you identified in question 2 above do you think has the biggest potential to impact the calculated NPV if the assumption is innapropriate?
Note: Do not run a sensitivity analysis on the discount rate; assume it has been determined by the CFO and does not need to be tested. Instead, run sensitivity analyses on the assumptions you identity here in #3 as having the biggest possible impact.
Q4. Run at least two sensitivity analyses using different values for the assumption you identified in question 3. (Note: even though the underlying rates of change on tab 2 are releatively constant, you are not locked in to these. Use your insight and critial thinking to determine what assumptions you believe make the most sense. As with prior assignments, it is your thought process that matters most). You are welcome, but not required, to use the ""What If"" analysis for your calculations because it would require an ancillary set of calculations in order to create a table for the assumptions identified in Q2 above. You are also welcome, but not required, to graph your results.
Discuss how the results of your sensitivity analyses would impact your decision.
Attachment:- Assignment File.rar