Make budget and calculate net spending as percentage. 1. Endowment has a current value of 1 Billion,

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Question:

Make budget and calculate net spending as percentage.

1. Endowment has a current value of 1 Billion, all are discretionary funds.

2. A consultant is hired to make recommendations to investment committee. The consultant earns 5 basis points per year for services.

3. Finance committee has costs of 30 basis points per year for salaries and record keeping.

4. Budget cycle is July 1 to June 30.

5. As a consultant, I am required to make forecasts for the next 1 year and 5 years.

6. Endowment needs to generate $75 million in withdrawals for operating expenses. withdrawal amounts are expected to increase by the rate of inflation plus 250 basis points.

7. University needs to withdraw $20 million from endowment at the mid point of year 2 to build Medical School.

8. Endowment includes $60 million in real estate that has been donated and it generates net cash flows of 900 basis points of the value of the physical real estate per year.