NOTE: This is homework question. Not a test question.

This is a 2 part question need answers to question a and b with detailed formula.

Ivanna Muny, MSU-educated technologist, has made a considerable fortune. She wishes to start a perpetual scholarship for technology students at Missouri State. The scholarship will provide a student with an annual stipend of $2500 for each of 4 years (freshman through senior), plus an additional $5000 during the senior year to cover entertainment expenses. Assume that students graduate in 4 years, a new award is given every 4 years, and the money is paid at the beginning of each year with the first award at the beginning of Year 1. The interest rate is 8%.

(a) Determine the equivalent uniform annual cost (EUAC) of providing the scholarship. EUAC =3609.10

EUAC =2500+5000(A/F,8%,4)

EUAC =2500 +5000(.2219)

EUAC = 2500+1109.50

EUAC =3609.10

Answer:

Reasoning/Work:

(b) How much money must Ivanna donate to MSU?

Suggestion:

Using capitalized cost, you should start the donation in year 1 (not year 0) since the cycle starts in year 0.The consequence of this is that you will have to bring forward the capitalized cost one year using a TVM equation. Im not going to tell you which one but the capitalized cost at year -1 needs to be grown to a future value at year 0. In essence, that future value is the amount that needs to be donated in year 0.