#1 Examine the recent announcements, press releases and and reports and pick three projects that the firm
might be evaluating. Briefly identify these three projects, what division of the company would be proposing
them, and how much they might cost. It is okay to make them up, but justify them based on the company’s
stated purpose, mission, plans, etc. Be creative here but identify the sources you used. Make sure they are not
all of the same riskiness.
Example #1: Adtalem’s competitor Grand Canyon Education is building bricks and mortar campuses. ATGE is
considering buying an abandoned Walmart complex and turning it into a residential college campus aimed at
casino workers and with student housing for families. The estimated cost for the purchase and renovation of
the property is $300 million dollars. This is considered not risky as there is a shortage of courses in the
community college in Las Vegas where they plan to build. There are bond guarantees available for the
investment, from local government, making their cost of borrowing only 3%. (Yes, I made these things up, yes
they are quite feasible based on the company and its competitors. References to articles on Grand Canyon
and ATGE’s mission statement and the Vegas project bonds guarantees would be included here.) See, that is
not so bad, is it?
Second post, as a reply to the first, NLTFriday:
#2 Why is selecting a beta for a project more of an art than a science? As part of your answer, discuss the
relative riskiness of the three projects you have identified. How might you use project betas differently for each
of the three projects?
Example #2: The financial aspects of project risk for the former Walmart campus are lower due to the
government guarantee on the bonds. Politicians and unions have been calling for increasing college programs
in the area that serve workers and their families, so there is demand for the campus. Other schools in the area
are not meeting the needs of working adult students with families. This project would be considered of lower
risk, and its beta might be different as a result. What should it be? ATGE’s WACC is estimated to be 7.76% but
this project might be less risky so it’s hurdle rate 9or project WACC) might reflect a lower beta and a project
WACC of 7.00%. (References included here.)