Managing Debt and Capital Investments: A Toolbox for Private Colleges and Universities

All private colleges and universities make strategic capital investments and consider the use of debt to fund those investments. From the commonplace purchase of photocopiers to the construction of new academic buildings or dormitories, investment decisions that yield long-term financial benefits must follow on the heels of careful analysis. To that end, this toolbox will help boards, presidents, and chief financial officers understand the mechanics of capital investments, debt management, and project planning by: (1) explaining how to analyze and select a capital investment project and a method for funding the project; (2) providing templates for analyzing capital investment projects, estimating the cost of debt, and preparing a project business plan; (3) identifying sources of funds in addition to debt to finance investment projects; and (4) including typical documents used when borrowing is the primary method of project financing. Eight steps have been identified in the process of designing a successful investment project and each of them are examined. They are: (1) Identifying prospective strategic investment projects; (2) Analyzing the capital investment; (3) Analyzing the nondebt options for financing the project and analyzing the debt options for financing the project; (4) Understanding loan and tax-free bond instruments; (5) Using checklists and other considerations; (6) Refinancing existing debt; (7) Preparing the business plan for the capital project; and (8) Presenting the business plan to the board of trustees for action.