Question
The Board of Directors at a university has embarked on the creation of a new strategic plan, and has approached your class to assistance. When
The Board of Directors at a university has embarked on the
creation of a new strategic plan, and has approached your class to assistance. When the plan is fully implemented, they expect that the University will return to profitability levels pre-COVID-19 and that these will be sustainable for the next 5-years, when the next strategy planning cycle commences. They also expect that the strategies will reposition the University as the premier Higher Educational institution.They have provided your class with the following sets of information and requirements: 1. The directors are planning to grow consultancy services. The University presently has several major clients. They have determined that to grow this aspect of the University's business, it
must have a presence in the easterly most part of the Island. One of the companies with
whom the University presently consults has decided to re-engage the University. The
University requires that you advise them as to whether to accept the new contract.
The University as determined that it takes $6,000 contribution per labour hour for previous
work done for the client and expects this level of contribution to continue if it wins the new
contract. The University could carry out the work from their existing offices in Town 1,
with an increase of $400,000 in administrative expenses. The University directors are of the
view that without a commitment to this part of the country it stands a 60% chance of winning the contract. The cost to prepare the bid from the existing office (Town 1) is $2,000,000. If the bid is won, there is an expectation of gaining 10,000 hour of consultancy work from the client for each of the next three-years when the contract is re-opened for tender. The cost for preparing the bid would then rise to $3,000,000.
However, if the University was to make a commitment to having a physical presence in the
east of the country they expect to be able to gain another 3,000 hours of work from other
clients. Work for these other clients would be expected to make a contribution of $8,000 per hour. The physical presence in the east would also increase the University's chance of winning the contract by 20%. It would, however, involve setting up an office in this region - renting space and hiring staff and so on. If this is done, it would cost the University $7,500,000 and has no expected residual value in three years' time - the time period over which the University evaluates all new strategies. The University has also provided your class with two components of its most recent financial statements of its machine-shop that produces chairs. Prior to COVID-19, the machine-shop contributed s income; the trend appears to be falling since. The University is contemplating purchasing some additional equipment at an initial cost of $30 million, which they hope will turn around the earnings fortunes of the machine-shop.
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