A leading cancer research institution received a gift for cancer research. The institution is deciding whether to use the gift to create an endowment fund or to build a new research facility. If the gift is used to establish an endowment fund, the fund would award research funding and scholarships totaling $9.75 million per year with the first awards to be granted at the end of next year and continue each year perpetually. Alternatively, if the gift is used to building an integrative cancer research facility, the construction of the facility will cost
$16.5 million and the building is expected to be renovated every 10 years at a cost of $3.3 million. The annual maintenance costs are expected to be $1 million. If the facility is expected to last forever, which alternative should be selected at an interest rate of 2% per year?

Question

Quizplus · Accepted Answer

The Answer of A leading cancer research institution received a gift for cancer research. The institution is deciding whether to use the gift to create an endowment fund or to build a new research facility. If the gift is used to establish an endowment fund, the fund would award research funding and scholarships totaling $9.75 million per year with the first awards to be granted at the end of next year and continue each year perpetually. Alternatively, if the gift is used to building an integrative cancer research facility, the construction of the facility will cost
$16.5 million and the building is expected to be renovated every 10 years at a cost of $3.3 million. The annual maintenance costs are expected to be $1 million. If the facility is expected to last forever, which alternative should be selected at an interest rate of 2% per year?

A Leading Cancer Research Institution Received a Gift for Cancer