Question

Goods Guys Foods established a trust fund that provides $125,000 in scholarships each year for needy students. The trust fund earns a fixed 7.25 percent rate of return. How much money did the firm contribute to the fund assuming that only the interest income is distributed

Answer 1

Answer:

$1,724.138

Explanation:

Given:

Payment received each year = $125,000

Rate of return = 7.25 % = 0.0725

Present value = ?

Computation of Present value:

Present value = Payment received each year / Rate of return

= $125,000 / 0.0725

= $1724137.93

Present value = $1724137.93

Present value = $1,724,138 (approx)

Therefore, firm have to contribute  $1,724.138