for reasons not entirely clear, you have been named person of the year by time m
ID: 1218133 • Letter: F
Question
for reasons not entirely clear, you have been named person of the year by time magazine. because of this prestigious accolade, you decide to endow a scholarship in your name. the scholarship will provide $10,000 for one student each year for an infinite period of time. the initial cost to setup the scholarship is $8,000 the annual cost to maintaine the scholarship is $2,000 if the appropriate interst rate is 8% how much money must you donate now to provide the annual scholarship, setup costs and actual maintenance cost?
Explanation / Answer
Total annual scholarship cost = Annual scholarship + Annual maintenance = $10,000 + $2,000 = $12,000
Present value (PV) of this perpetual annual cost = $12,000 / 0.08 = $150,000
Required donation = PV of scholarship cost + Initial setup cost = $150,000 + $8,000 = $158,000
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