Question

8. A company has a contract with the president that it has just hired. According to the contract a one-time payment of $25,400,000 will be paid to the president when he completes his first 8 years of service. For this purpose, the company would like to set aside equal amounts of money, once each year, in order to cover this anticipated large expense. The company can earn 7 percent on these amounts of money. How much will it need to set aside each year

Answer 1

Annual deposit= $2,475,681.17

Step-by-step explanation:

Giving the following information:

Future Value= $25,400,000

Number of periods= 8 years

The company can earn 7 percent on these amounts of money.

To calculate the annual deposit required, we need to use the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

Isolating A:

A= (FV*i)/{[(1+i)^n]-1}

A= (25,400,000*0.07) / [(1.07^8) - 1]

A= $2,475,681.17