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Homework answers / question archive / Perpetuity Calculations You have been hired to run a pension fund for TelDet Inc, a small manufacturing firm

Perpetuity Calculations

You have been hired to run a pension fund for TelDet Inc, a small manufacturing firm. The firm currently has $5 million in the fund and expects to have cash inflows of $2 million a year for the first five years followed by cash outflows of $3 million a year for the next five years. Assume that interest rates are at 8%.

a. How much money will be left in the fund at the end of the tenth year?

b. If you were required to pay a perpetuity after the tenth year (starting in year 11 and going through infinity) out of the balance left in the pension fund, how much could you afford to pay?

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