You have been hired as a pension fund manager for TeleRed Corporation, a small m

Question

You have been hired as a pension fund manager for TeleRed Corporation, a small manufacturing firm. The corporation 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? (How would you figure this out/plug it into a financial calculator) b. If you were required to pay perpetuity after the tenth year out of the balance left in the pension fund, how much could you afford to pay?

Explanation / Answer

a) Year Cashflow Year 0 5000000 Year 1 2000000 Year 2 2000000 Year 3 2000000 Year 4 2000000 Year 5 2000000 Year 6 -3000000 Year 7 -3000000 Year 8 -3000000 Year 9 -3000000 Year 10 -3000000 Future Value = $10434745.12 b) The required value be A so A/0.08 = 10434745.12 or A = $834779.61

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.