PerpetuityCapitalized Cost永久成本.pptVIP

Perpetuity (Capitalized Cost) Occasionally, donors sponsor perpetual awards or programs by a lump sum of money earning interest. The interest earned each period (A) equals the funds necessary to pay for the ongoing award or program. The relationship is A = P( i ) This concept is also called capitalized cost (where CC = P). Perpetuity Example A donor has decided to establish a $10,000 per year scholarship. The first scholarship will be paid 5 years from today and will continue at the same time every year forever. The fund for the scholarship will be established in 8 equal payments every 6 months starting 6 months from now. Determine the amount of each of the equal initiating payments, if funds can earn interest at the rate of 6% per year with semi-annual compounding. Perpetuity Problem Given: A = 10 000 per year, every year after Year 5 n = 8 payments @ 6 mo. intervals, starting @ 6 mo. i = 6%, cpd semi-annually Find Amount of Initiating payments (Ai ): Perpetuity Problem Given: A = 10 000 per year, every year after Year 5 n = 8 payments @ 6 mo. intervals, starting @ 6 mo. i = 6%, cpd semi-annually Find Amount of Initiating payments (Ai ): Complex Flows and Perpetuity In some circumstances, there is a mix of recurring and non-recurring or one-time cash flows that must be capitalized for perpetuity. These mixed flows may be accounted for by: 1.) finding the NPW of all the one-time and non-recurring cash flows (= CCPart 1 ) 2.) finding the Annual Equivalent of one cycle of all the recurring cash flows, and then computing P (= CCPart 2) from the perpetuity relationship A = P(i) 3.) summing (1.) and (2.) to find the total capitalized cost: CCTotal = CCPart 1 + CCPart 2 Capitalized Cost Example The SD School of Minds wants to build a soccer stadium. It will cost $ 5 000 000 to construct, and $ 7 000 each year to clean. In 20 years, the contractor will return to tighten all the bolts on the stadium structure, and they will charge $ 90 000 (one time co