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An Endowment Fund has a $5.0 million one time commitment in 2018. It expects $7.0 million...

An Endowment Fund has a $5.0 million one time commitment in 2018. It expects $7.0 million in annual contributions in 2018 and $3.0 million in endowment expenses. The current income tax rate is 30%. What is the endowment’s liquidity requirement?

a) $3.0 million

b) $5.6 million

c) $1.0 million

d) $2.2 million

e) $6.0 million

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Expert Solution

. ($ Million)
Annual Contribution received in 2018 7
Less:Endowment Expenses 3
Endowment inocme before tax in 2018 4
Less:Income Tax@30% 1.2
Income available in 2018 2.8
one time commitment in 2018 5
liquidity requirement in 2018 2.2
[Commitment-Income available]

Correct Option-(d) $2.2 million

jeff jeffy answered 3 years ago
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