Sir in the candidate Resource- Practice Question #7/85 –
Vitting University Case Scenario
Vitting University Case Scenario
Teddy Brealer is the president of Vitting University (VU). VU just successfully completed a fundraising campaign of $300 million that significantly increased the funds in the endowment (Exhibit 1).
EXHIBIT 1
VITTING UNIVERSITY ENDOWMENT FUND ASSETS AND OBLIGATIONS ($ MILLIONS)
Immediately available funds | 50.2 |
Immediately available funds, restricted to scholarships | 53.2 |
Current endowment obligations | 89.5 |
PV of future endowment obligations* | 502.4 |
PV of pledged future contributions to endowment, unrestricted* | 505.4 |
PV of pledged future contributions, restricted to scholarships | 87.8 |
*These funds may be used for scholarship and non-scholarship items.
At a meeting with VU’s board of regents, Brealer proposes that the endowment should fund a new capital improvements project for the university that will cost $210.3 million. Brealer acknowledges that it is a large amount that will require another fundraising campaign in the future, but he states that he has already found a wealthy alumnus, Roger Clement, who is willing to donate $50 million if the project is undertaken.
Q. Based on an economic balance sheet, the answer to Wong’s question about the underfunding of the endowment (in $ millions) is closest to:
- 105.6.
- 55.6.
- 196.6
In the Answer they have taken Funds Available/ Obligated to Scholarship Only. Whereas It cannot be used related to Project being Proposed. So ideally the answer should have been 196.6 but it is given as 55.6.
Can you please advise
I understand why you think we should omit the $141 million contribution made only for scholarship use. But if we do that while calculating the net worth in the economic balance sheet, we should also omit the portion of current and future obligations attributable to scholarships, about which we are not given any data.
In the figures $89.5 and $502.4 m of current or future obligations, we do not know what portion is for scholarships and what is not. Therefore, we need to calculate net worth without being specific about the fact that certain funds are restricted only for scholarships. We are, therefore, assuming that the entire $53.2 and $87.8 m are going to be used up in the current and future obligations, thereby implying that whatever funds are remaining unused for the obligations are all unrestricted funds which can be used for the $210.3 m new capital improvement project.