The Fox Family, heirs of a large real estate fortune, funded the Fox Foundation 25 years ago.
Question:
The Fox Family, heirs of a large real estate fortune, funded the Fox Foundation 25 years ago. The foundations sole purpose is to provide room and board and tuition for gifted inner city scholars in Philadelphia who will be attending the Fox School of Business. The $40 million portfolio is expected to generate a real return of 4% and cover operating expenses of 0.80%. General inflation is estimated at 2.5%, while costs covered by the foundation are expected to increase at 3.5%. The foundation is tax exempt, subject to no minimum payout requirement, and the trustees have expressed a strong desire to generate a 3% annual return.
1. State the return objective of the foundation.
2. Calculate the required annual nominal return requirement. Show your calculations.
3. Calculate the dollar amount that can be distributed over the next year that is consistent with the foundations long-term goals. Show your calculations.
Governmental and Nonprofit Accounting
ISBN: 978-0132751261
10th edition
Authors: Robert Freeman, Craig Shoulders, Gregory Allison, Robert Smi