The Great Giant Corp. has a management contract with its newly hired president.

Question

The Great Giant Corp. has a management contract with its newly hired president. The contract requires a lump sum payment of $25,400,000 be paid to the president upon the completion of her first 8 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 7 percent on these funds. How much must the company set aside each year for this purpose?

$2,401,410.73

$1,778,000.00

$2,475,681.17

$1,962,337.99

$2,406,733.45

Explanation / Answer

Payment to be set aside = future value /PVAF@7%,8

                                     = 25,400,000   / 10.2598

                                      =$ 2,475,681.79

correct option is "C"

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