The college is considering funding options for new engineering building on campus. The money has been raised for theconstruction costs and now the focus is raising funds for the annual upkeep and maintenance (U&M) expenses. For this building,contractors will be hired with a series of 3-year agreements over the 30 years. Under each contract the university will pay$125,000 at the beginning of each 3-year agreement to cover all U&M building expenses over that 3-year period. The first 3-yearagreement begins when the building opens.A wealthy alumnus (you one day) has agreed to donate enough at the building opening to cover the U&M expenses over the 30-year term. If money invested by the school's engineering foundation earns 6% interest compounded quarterly, how much mustbe donated.(Hint: Build a spreadsheet like the one below)Year0369121518212427CostRateCash FlowFERH$125,000$125,000.00Present Worth6%$125,0003 year U&M Contract CostAnnual Interest Rate (Compounded Quarterly)Running Total PW$125,000$610,975.51

This question relates to time value of money which states an amount today is worth more than the…

A wealthy alumnus (you one day) has agreed to donate enough at the building opening to cover the U&M expenses over the 30- year term. If money invested by the school's engineering foundation earns 6% interest compounded quarterly, how much must be donated.

A wealthy alumnus (you one day) has agreed to donate enough at the building opening to cover the U&M expenses over the 30- year term. If money invested by the school's engineering foundation earns 6% interest compounded quarterly, how much must be donated.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A father has saved money in a fund to finance his son's 4-year university program. The fund pays out 300$ every month at the beginning of each month for 8 months (September through April) plus an extra 2.000$ each September 1st for 4 years. At j4 = 8%, what is the value of the fund on the first day of university, before any withdrawals?
. An engineer signs a contract to work in Hong Kong for 5 years. The contract specifies that at the end of his 5 years of service, he will receive $90,000 at the end of each of the following 3 years. Assume funds earn 6% compounded annually. (a) Find the amount needed at the end of his 5 years of service to fund the payments. (b) Find the end-of-year payment into a sinking fund needed to accumulate this amount. * $240,570.90; $42,677.28 $250,570.90; $45,677.28 $42,677.28; $240,570.90 Other:
A man won 300,000 in a lottery decided to place 50% of his winning in a trust fund for the college education of his son. If the money will earn 14% per year compounded quarterly, how much will be the money at the end of ten years when his son will be starting his college education? Provide the cash flows and diagram.
. James decided to fund a school in Orange County in perpetuity. The first payment will be made three years from today (at the end of year three) and will be $5,320. Each year after that, the school will receive payment from James annually. The payment will increase at a rate of 3% per year after the first payment. If the annual interest rate is 9%, what is the present value of this endowment?
In a family members will, they would like to establish a perpetual trust to provide for the maintenance of a school's learning lab. If the annual maintenance is fixed at $12,500 per year and the trust can earn 5% interest, how much money must be set aside in the trust?
THIS QUESTION HAS TWO PARTS After a retiring from a successful business career, you would like to make a donation to your university. This donation will go into the school's endowment pool and the returns generated from the donation will support the salary of a new professor in the business school on a perpetual basis. The university expects to earn returns of 5.5% on its endowment pool. You may assume that any distributions to support the salary will be made annually. Part A) You can make a donation today (t=0) in the amount of $2,500,000. The first cash flow distribution from your donation to cover the professor's salary will take place in one year (at t=1). Which of the following is closest to the annual salary payment that can be made as a result of your donation? A. $137,500 B. $454,545 C. $2,500,000 D. $100,000 Part B) After further discussions, the university determines that the employment agreement with the new professor will call for annual salary increases of 2%. Given this…
1. The home improvement center (HIC) has an employment contract with the newly hired CEO. The contract requires a lump-sum payment of 32.4 million dollars to be paid to the CEP upon the successful completion of her first five years of service. HIC, wants to set aside an equal amount of money at the end of each year to cover this anticipated cash outflow and will earn 7,25% on the funds. How much must HIC is set aside each year for this purpose? a) 7 270 433 b)5 227 064 c)5 668 987 d) 5 606 026 e) 6 778 958
2. An endowed scholarship is one funded by a single deposit in a permanent scholarship account by a successful alum. The endowment deposit amount remains untouched and unchanged in the scholarship account. The interest accumulated each year is taken out and paid to a deserving student at the end of each year in a scholarship award. If an endowment earns 3.25% annual interest compounded monthly, a. What is the effective interest rate? b. What would the annual scholarship award be if the amount of the endowment was $300,000?

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