# How to treat Donations in a Foundation Return Calculation

Hey guys, maybe I’m fried and I’m missing a key point in question 6 of the 2013 exam, parts B and C.

Part B asks for the nominal return, while Part C asks for the liquidity requirement in Year 2. For the nominal return part in B I subtracted the \$2million donation from the required return calculation (or about 1.9%) because I saw it as the donation lowering the required the required return that the plan must acheive. I also saw another similar question in the past where a foundation was receiving dividends from a business it owned and the dividends somewhat lowered the required return, so I thought this was a similar question. But apparently this was not the case and there is no acknowledgement of the \$2 million donation in the required return calculation. However, in Part C it asks for the liquidity requirement, and in the answer it takes into consideration the \$2 million donation. In Part C I did not include it because I viewed the question as asking how much will the foundation need to pay out that year, donation or not.

Looks like I had them mixed up and I should not have acknowledged the \$2million in part B, and should have in Part C. Is there an easy way to pick up on when this donation would need to be considered. Am I missing a key word or phrase here that could have helped me? It’s a bit confusing, but i also could just be burned out. Thanks, and good luck to all.

Donations impact liquidity needs, not return.

let’s say the foundation was to receive \$9b donation from Warren Buffet on december 31, 2015. The spend for 2016 is projected at 6%, operating fees at .4% and inflation is 3%. There are no taxes.

Regardless of the donation, the return will be (1.06*1.004*1.03) = 1.096

Since they jsut received the 9b, they have ample cash on hand which enhances their liquidity.

EDIT: the question will also hint at what you need to do. It’ll say something like “return based on assets as of the last day of 20XX”

What if guarantee donation? No impact on return as well?

Why would it impact the return requirement?