Question

A fund is to be donated by APIEMS Foundation to provide annual scholarships to deserving Industrial Engineering students. The fund will grant P500,000 each for the first 5 years, P800,000 for each of the next 5 years, and P1M each year thereafter. The scholarship will start one year after the fund is established. If the fund earns 8% interest, what is the amount of the donation

Include the cash flow diagram

Answer 1

Cash Flow Diagram

Given data:

Fund Grant = A1 = P500000 [First 5 years]

Fund Grant = A2 = P800000 [Next 5 years]

Fund Grant = A3 = P1000000 [Thereafter]

Interest = I = 8%

Tenure = ∞

Fund Value = P =?

Fund Value = Present worth of A1 + Present worth of A2 + Present worth of A3

P = 500000(P/A,8%,5) + 800000(P/A,8%,5)(P/F,8%,5) + 1000000(P/A,8%,∞)(P/F,8%,10)

Using DCIF Tables and we have (P/A,8%,∞) = 1/I

P = 500000(3.993) + 800000(3.993) *(0.6806) + 1000000(1/0.08) *(0.4632)

P = P 9960608.64