Question: THIS QUESTION HAS TWO PARTS After a retiring from a successful business career, you would like to make a donation to your university. This donation

THIS QUESTION HAS TWO PARTS After a retiring from a successful

THIS QUESTION HAS TWO PARTS After a retiring from a successful business career, you would like to make a donation to your university. This donation will go into the school's endowment pool and the returns generated from the donation will support the salary of a new professor in the business school on a perpetual basis. The university expects to earn returns of 5.5% on its endowment pool. You may assume that any distributions to support the salary will be made annually. Part A) You can make a donation today (t=0) in the amount of $1,800,000. The first cash flow distribution from your donation to cover the professor's salary will take place in one year (at t=1). Which of the following is closest to the annual salary payment that can be made as a result of your donation? A. $1,800,000 B. $99,000 C. $327,273 D. $72,000 Part B) After further discussions, the university determines that the employment agreement with the new professor will call for annual salary increases of 2%. Given this new requirement, and assuming the first salary distribution will still occur one year from today, what is the starting salary (at t=1) that can be supported with your $1,800,000 donation? A. $100,980 B. $63,000 C. $135,000 D. $36,000

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