Practice Corporate Finance - In 2013 Bill Gates had a private
Practice Corporate Finance
In 2013 Bill Gates had a private wealth of about $28 billion after he reduced his stake in Microsoft from 21% to around 14% by moving billions into his charitable foundation. Let’s see what Bill Gates can do with his money in the following problems.
a. I’ll take Manhattan? Manhattan’s native tribe sold Manhattan Island to Peter Minuit for $24 in 1626. Now, 387 years later in 2013, Bill Gates wants to buy the island from the “current natives.” How much would Bill have to pay for Manhattan if the “current natives” want a 6% annual return on the original $24 purchase price? Could he afford it? (5 points)
b. How much would Bill have to pay for Manhattan if the “current natives” want a 6% return compounded monthly on the original $24 purchase price? (5 points)
c. Microsoft Seattle? Bill Gates decides to pass on Manhattan and instead plans to buy the city of Seattle, Washington, for $60 billion in 10 years. How much would Mr. Gates have to invest today at 10 percent compounded annually in order to purchase Seattle in 10 years? (5 points)
d. If Bill Gates decides to support his foundation with further funding of $1 billion that he will contribute to the saving account at the end of each year during the next 20 years and the bank offers him a return of 8%, how much will be generated on this saving account after 20 years? (10 points)