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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
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 7% 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 $1,900,000. 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. $133,000 B. $142,310 C. $124,299 D. $1,900,000 Part B) After further discussions, the university determines that the employment agreement with the new professor will call for annual salary increases of 2%. Additionally, the university does not anticipate actually hiring for this position for several years. What is the starting salary that can be supported with your $1,900,000 donation given these new assumptions if the first annual salary payment will be made five years from today (t=5)? O A. $174,336 B. $124,526 122 212
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