Mr. G. Buffon has been hired to manage pension fund for Zaza Company, a small information technology firm. The company currently has $20 million in the fund and expects to have cash inflows of $4 million a year for the first six years followed by cash outflows of $6million a year for the next six years. Assume that expected rate of return is 9 percent.
a. How much money will be left in the fund at the end of the year twelve?
b. If Mr. Buffon was required to pay perpetuity after the twelve year out of the balance left in the pension fund, how much could Mr. Buffon afford to pay?
c. Interpret and make comments on the results.