Question

Suppose that a company decides to make an annual gift to fund undergraduate scholarships. The first of these gifts will be given today and it is anticipated that the gifts will continue forever. The nominal discount rate is

8% and the rate of inflation is 2%.
The company anticipates that, in each of the next 50 years, it can
recruit one candidate to start a perpetual gift of $10,000 per year in real terms, i.e., this year the department receives one $10,000 gift, next year it receives two such gifts, the next year three gifts and so on. After year 50, no new donors are recruited, so the department receives 51 gifts per year from the existing donors. What is the present value of all of the scholarship gifts that the company anticipates receiving?

Answer 1

As compared to its first year of operation, ABC Company grew 8% in the second year and an additional 2% per year for the next two years. If total growth for years 2-4 was $45,000 over the first year’s sales of $150,000, how much did ABC Company grow in year 2?