Question

The Great Giant Corp. has a management contract with its newly hired president. The contract requires a lump sum payment of $25 million be paid to the president upon the completion of her first ten years of service. The company wants to set aside an equal amount of funds each year to cover this anticipated cash outflow. The company can earn 6.5% on these funds. How much must the company set aside each year for this purpose? $1,775,042.93 $1,798,346.17 $1,801,033.67 $1,852,617.25 $1,938,018.22

Answer 1

Answer:

$1,852,617.25

Explanation:

Whe need to know the annuity per year to generate a future value of 25,000,000 after 10 years at the given rate of 6.5%

$FV \div \frac{(1+r)^{time} -1 }{rate} = C$

FV 25,000,000.00

time 10

rate 0.065

$25,000,000 \div \frac{(1+0.065)^{10} -1}{0.065} = C$

C  $ 1,852,617.251