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(Abu Dhabi would also cover the cost of hiring extra faculty and travel cost for US faculty to go teach on the new campus, so the $24M is the...


(Abu Dhabi would also cover the cost of hiring extra faculty and travel cost for US faculty to go teach on the new campus, so the $24M is the university’s per year profit). The deal would end at t=12. What is the PV of the deal with Abu Dhabi? Is it suflicient to cover the shortfall? (d) The university president is impressed with the PV calculations but would also like to know exactly how the endowment will develop over the years, assuming the deal with Abu Dhabi is accepted. At t=0 after the initial payment from Abu Dhabi, the value of the endowment is $1.2B. What is the value of the endowment at t=1 (after interest is received and after paying for the university’s t=1 spending)? What is the value of the endowment at t=12 (after interest is received, after the last payment from Abu Dhabi and after paying for the university’s t=12 spending)? At what time will the endowment equal zero if the deal with Abu Dhabi is not accepted (please report the time at which the endowment first goes negative)? Hint: Do not bother with Excel functions here, just calculate the value of the endowment in a spreadsheet year by year for the different cases.
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