Ask Question
14 May, 12:06

Dr. Fog E. Professor is retiring and wants to endow a chair of engineering economics at his university. It is expected that he will need to cover an annual cost of $250,000 forever. What lump sum must he donate to the university today if the endowment will earn 5% interest?

+2
Answers (1)
  1. 14 May, 15:57
    0
    The lump sum should be of $5,000,000.

    Explanation:

    Giving the following information:

    It is expected that he will need to cover an annual cost of $250,000 forever. The interest rate is 5% annual.

    We need to calculate the present value of a perpetual annuity. We will use the following formula:

    PV = Cf/i

    PV = 250,000/0.05

    PV = $5,000,000
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Dr. Fog E. Professor is retiring and wants to endow a chair of engineering economics at his university. It is expected that he will need to ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers