Question

Can’t use excel the correct answer is H, but I don’t know how the professor got it

11. Mrs. where they enthusi fund interest rate o Daisy Flowers and her husband, Bud, have a daughter named Rose. They live in the town of Petal, MS y own their own florist shop, "Flowers by Flowers", or as the locals call it, Flowers. They are gardening asts and desire to beautify their hometown. Fortunately, the couple is able to donate $2 Million to set up a cover expenses associated with quarterly beautification projects (theoretically,_lasting forever). Assume am f4%, compounded quarterly. Given the first beautification project occurs exactly the L family makes their donation, the amount of money available each quarterly period, is closest t a) $20,745 b) $42,448 c) $43,297 d) $41,616 e) $80,800 f) $80,000 )$20,000 y $21,442 i) $21,657 2 aS Assume costs of $50,000 eve in iearl

Answer 1

There are 8 quarters in two years which are deferred before the first project so the present value of first payment is required to be find. Note that exactly after two years the payment occurs so either take 7 quarters and assume the first payment is made at the end of 8th quarter or in the beginning of 9th quarter, in both conditions we use the deferred period as 7 quarters. Interest rate per quarter is 1 percent.

Capitalized cost of fund = donation amount = Quarterly payment x (P/F, 1%, 7) / 1%

A = 2,000,000 x 1% / 0.93272

= $21,442

Hence option H is correct.