Computation of profit margin of College at given strength of students.
Houghton College is planning to begin a new graduate degree program in Mathematics. The initial startup cost for computing equipment, facilities, course development and staff recruitment is $350,000. The college plans to charge tuition for the program at $21,000 per year per student. Administration costs are expected to be $12,000 per student. In addition the College expects to pay out an average of $3,000 per student in scholarship awards.
Assume the college keeps it's tuition at $21,000. The college has applied for a state grant for the new program, if the grant is approved the college will receive $100,000 per year in grant money. In order to receive the grant they will need to increase their average scholarship award by $1,000 per student. With the increase in scholarship money the school expects an increase in enrollment to 125 students for the year. Should the college accept the grant? Explain the basis for your answer.