Perpetuity initial step confusion

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SUMMARY

The discussion centers on calculating the present value needed to fund a library's monthly expenses of $52,000 in perpetuity, starting in 8 years, with an interest rate of 14.4% compounded monthly. The user initially attempted to use a financial calculator with incorrect parameters, leading to confusion about the initial steps required. The correct approach involves determining the present value of the perpetuity formula and adjusting for the 8-year delay before the expenses begin. Accurate calculations are essential for determining the required investment today.

PREREQUISITES
  • Understanding of present value and perpetuity concepts
  • Familiarity with financial calculators or spreadsheet software
  • Knowledge of compounding interest calculations
  • Basic grasp of time value of money principles
NEXT STEPS
  • Study the formula for present value of a perpetuity: PV = PMT / r
  • Learn how to adjust present value calculations for future cash flows
  • Explore financial calculator functions for time value of money problems
  • Research the impact of compounding frequency on investment returns
USEFUL FOR

Finance students, investment analysts, and anyone involved in financial planning or budgeting for long-term projects.

Aleckand9
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Hi, I'm a bit confused regarding what steps to take to answer the following question:

In 8 years, a new library is being opened. Expenses are estimated to be $52,000, payable at the end of each month. If all funds earn 14.4% compounded monthly, how much money needs to be invested today, to be able to support the library in perpetuity?I have no idea what the first step is. I know it's something to do with 8 years but not sure what to do with it. I tried doing N=12*1000=12000, I/Y=14.4, P/Y=12, C/Y=12, FV=0, PMT=52000, PV=X however the answer I get for PV is wrong because I feel like I'm missing the initial step.

I could be completely wrong or misinterpreted the question so any help or clarification would be amazing. Thanks.
 
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Aleckand9 said:
Hi, I'm a bit confused regarding what steps to take to answer the following question:

In 8 years, a new library is being opened. Expenses are estimated to be $52,000, payable at the end of each month. If all funds earn 14.4% compounded monthly, how much money needs to be invested today, to be able to support the library in perpetuity?I have no idea what the first step is. I know it's something to do with 8 years but not sure what to do with it. I tried doing N=12*1000=12000, I/Y=14.4, P/Y=12, C/Y=12, FV=0, PMT=52000, PV=X however the answer I get for PV is wrong because I feel like I'm missing the initial step.

I could be completely wrong or misinterpreted the question so any help or clarification would be amazing. Thanks.

Answered here: Confused on a question regarding Perpetuity
 

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