You have been hired to run a pension fund for Mackay Inc, a small manufacturing firm. The firm currently has $5 million in the fund and expects to have cash inflows of $2 million a year for the first 5 years followed by cash outflows of $ 3 million a year for the next 5 years. Assume that interest rates are at 8%.
i. How much money will be left in the fund at the end of the tenth year?
ii. If you were required to pay a perpetuity after the tenth year (starting in year 11 and going through infinity) out of the balance left in the pension fund, how much could you afford to pay?