Homework Answers
| a)When the discount rate is 4% , he must donate following amount | ||||||||
| = | amount/discounting factor | |||||||
| = | 25000/.04 | |||||||
| 625000 | ||||||||
| b)if first payment is made immediately then, he must donate following amount | ||||||||
| Year | amount | present value factor ( 4%) | ||||||
| 0 | 25000 | 1 | ||||||
| 2 to infinity | 25000 | 0.04 | ||||||
| Total amount to be donated | 25000+(25000/.04)present value factor for 2nd year | |||||||
| 25000+(25000/.04)*.924 | ||||||||
| 602500 | ||||||||
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