Capitilzed equivalent question An engineering school has just completed a new en
ID: 1098224 • Letter: C
Question
Capitilzed equivalent question
An engineering school has just completed a new engineering complex worth $47 million. A campaign targeting alumni is planned to raise funds for future maintenance costs, which are estimated at $1.8 million per year. Any unforeseen costs above $1.8 million per year would he obtained by raising tuition. Assuming that the school can create a trust fund that earns 7% interest annually, how much has to be raised now to cover the perpetual string of $1.8 million annual costs? The comments will also carry marks.Explanation / Answer
school should create trust fund of = 1.8/.07 = $25.71 million
as present value of all the future cash flow = (1.8/1.07)+(1.8/1.07^2)..........infinity
on solving,
= 1.8/.07 = $25.71 million