Recently, Fantastic University undertook a building project which required $6.5 million of capital. The university had endowment funds of more than $15 million and a triple A bond rating. After...

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Introduction
It is apparent from the case study, that Fantastic University undertook a project which needed
a capital of approximately $6.5 million. The University had endowment funds of more than
$15 million with an AAA bond rating. The Board of the University and management had
decided to fund the required amount of capital with the help of operations and not with the
endowment or borrowed amount. In the investment analysis for the case, it is essential to
understand the aspects related to the mode of finance.
 Funds through endowment investment assets. These assets are invested by the University
portfolio via long or short term pool, property pool and the cash pool. In order to generate
the fund for the project, the university had the option to liquidate these assets
(Damodaran, 2007).
 University can borrow the requisite amount with an interest rate from outside sources.
 Capital funding i.e. the University can take the project capital through the internal capital
fund source. University has allocated a significant amount of capital in the capital fund
program, which involves the funds collected through student’s tuition fee, development
fee, funds received through commonwealth or state government, amount received through
the liquidation of the endowment asset, income earned from the other investments and the
income donated by the other parties for the capital development. It is noteworthy that the
amount especially for the maintenance, internal borrowings are not included in the capital
funding (Berk et. al., 2013).
Pros and cons
 Endowments: For any firm, endowment is considered best feasible option for getting
funds. It has been found that most of the individuals are showing no profit in their wills
and generally direct the donation amount into the permanent fund program. The main
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advantage of endowments can be viewed with the fact that there is no restriction on the...