Question

Merser company plans on eight annual concerts. The concerts would raise funds for an endowment of $32,000,000 per year into perpetuity. The endowment will be finalized at the end of the eighth year. The rate of interest is expected to be 4.25 percent p.a. in all future periods. How much must the company earn and deposit in each of the next eight years to accumulate the required amount? please show all work in excel (formulas)

Answer 1

$ 80,990,066

Step-1:Calculation of present value of amount needed for endowment
Amount needed for endowment will be the present value of perpetual cash flows which is calculated as follows:
Present Value	=	Perpetual cash flow	/	Discount rate
	=	$32,000,000	/	4.25%
	=	$752,941,176
Step-2:Calculation of amount to be deposited at the end of each year for 8 years
Annual payment		=-pmt(rate,nper,pv,fv)
		= $80,990,066
Where,
rate	=	Interest Rate	=	4.25%
nper	=	Time	=	8
pv	=	Initial cash flow	=	0
fv	=	Future Cash Flow	=	$752,941,176

So, $ 80,990,066 will be required to be deposited for 8 years so that future value of such deposit could become $ 752,941,176 at the end of 8th year.