Lux Resources purchased equipment in exchange for a promissory note for $450 000, with the agreement to pay $8000 at the end of each month, starting in eight months. Interest on the loan is 7% compounded annually.
In partnership with the equipment manufacturer, Lux has agreed to establish a scholarship for local business students. A fund of $10 000 has been set up, with interest earned being paid as the annual scholarship amount. Money is worth 5% compounded annually.
a. Calculate the equivalent value of the equipment in eight months.
b. How many month-end payments will have to be made?
c. Calculate the maximum payout of the scholarship, assuming it to be a perpetuity.