# Thread: Need Help- Can you do this?

1. ## Need Help- Can you do this?

Hi All,

I am working with an NGO and I have given the assignment to let management know an amount which is sufficient to cover the expenses for infinite period.

Conditions:
Current annual expenses 100,000
Rate of Return 10% p.a.
Rate of inflation 10%.
What will be the amount?

regards

2. Originally Posted by asifrupani
Hi All,

I am working with an NGO and I have given the assignment to let management know an amount which is sufficient to cover the expenses for infinite period.

Conditions:
Current annual expenses 100,000
Rate of Return 10% p.a.
Rate of inflation 10%.
What will be the amount?

regards
What's an "NGO"?

Normally, with a Rate of Return equal to a Rate of Inflation, you will have quite a problem finding a finite solution.

If i = annual rate of return = 0.10.
If r = annual rate of inflation = 0.10

Present value of present year $\displaystyle = 100000*(1+r)^{0}/(1+i)^{0} = 100000$

Present value of NEXT year $\displaystyle = 100000*(1+r)^{1}/(1+i)^{1} = 100000$

Do you see the problem, yet?

3. Originally Posted by TKHunny
What's an "NGO"?
Neanderthalian Growling Orangutan

NGO=Non Governmental Organization=NPO

What if inflation rate = 10%
Rate of return = 8%

5. Originally Posted by asifrupani

NGO=Non Governmental Organization=NPO

What if inflation rate = 10%
Rate of return = 8%

I think you need a rate of return in excess of the rate of inflation (see TKH's post)

CB

6. Ok,

Now assume inflation rate is 8% and ROR is 10R% and current year's expenses are 100,000, what would be the amount to cover expenses for infinite period?

thanks
regards

7. Originally Posted by asifrupani
Ok,

Now assume inflation rate is 8% and ROR is 10R% and current year's expenses are 100,000, what would be the amount to cover expenses for infinite period?
Then you'd have

$\displaystyle \frac{{100,000 \times 1.10}}{{0.10 - 0.08}}$