quantitative bus week 2

Suppose California Baptist University (CBU) is considering creating a new brand new major, Medical

Science, in 2016. If CBU sticks with its current curriculum and creates no further majors, then the annual

revenue will be tuition ($11.5 mill ion), donation ($4.4 million), and research grants ($2.5 million). At the

same time, CBU incurs costs such as employee salaries ($6 million), rent ($5 million), and utilities ($2.2

million) to maintain its business annually.

If CBU decides to create new ma jors, then there are three possibilities. First, if medical research proves to

be successful, and new faculty members in medical science, receive funding more actively from the state

and federal government, then annual research grants are expected to incre ase from $2.5 to $8 million.

Also, medical research alumni are likely to donate funds to CBU in the future, which also is expected to

increase the amount of donation from $4.4 to $6 million, so the total revenue would increase by $7.1

million. On the other hands, the university should hire more staff/faculties in those areas, which would

increase employee salaries from $6 to $8 million, while rent and utilities stay the same as under “offering

no new major ” option . However, business analysts expect this probability to be 35%. Second, there is als o

a 40% chance that faculties in medical science have a hard time receiving federal research funds due to

the recession, in which case, the research grants decreases from $2.5 to $0.7 million, while revenues from

tuition and donation stay the same as under “offering no new major ” option . In this scenario, CBU will

still have to pay employment salary ($8 million) and rent and utilities stay the same as under “offering no

new major ” option . Finally, uncertain economic or regional factors may lead to a huge drop in enrollment,

decreasing tuition revenue. The boom in the housing market and recent drought increases rent and utilities

dramatically. In other words, there is a 25% chance that CBU is suffering a loss of $3.5 million (net

profits), if it chooses to offer a new major.

1. Draw a decision tree

2. Make a recommendation regarding whet her CBU should offer a new major or stick to its current

curriculum, using at least 150 words (Hint: You MUST calculate the expected net profit of the option

“offering a new major” and compare it to the net profit of the option of “offering no new major”)

3. Why do you think it is important to promote diversity of the curriculum of higher education in terms of

both teaching and research, and evaluate this from a biblical perspective. This is an open -ended question

but you must discuss this using at least 10 0 words.