Holistic Holidays Limited has an employment contract with Loretta Bloom, its new

Question

Holistic Holidays Limited has an employment contract with Loretta Bloom, its newly hired CEO. The contract requires a lump sum payment of $1.5 million be paid to Ms. Bloom upon the successful completion of her first three years of service. Holistic Holidays wants to set aside an equal amount of money at the end of each year to cover this anticipated cash outflow and expects to be able to earn 5.65 percent on the funds. How much must Holistic Holidays set aside each year for this purpose?

$472,784.59

$497,871.44

$554,903.11

$591,200.28

$629,392.81

Explanation / Answer

Answer is $472,784.59

future value annuity factor 5.65% =3.1727

=+((1+5.65%)^3-1)/5.65% =3.1727

future value =1500000

therfore amount to be set aside each year =1500000/3.1727 =$472,784.59

1500000/1.0565^3-1/.0565 = 1500000/3.1727 = 472784

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.