Question

A company has a contract with the president that it has just hired. According to the contract a one-time payment of $24,800,000 will be paid to the president when he completes his first 9 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 8 percent on these amounts of money. How much will it need to set aside each year

Answer 1

$1,985,976.79

Step-by-step explanation:

The formula for finding the amount is :

A = FV/ annuity factor

Annuity factor = {[(1+r)^n] - 1} / r

FV = Future value = $24,800,000

A = Amount

R = interest rate = 8%

N = number of years = 9

Annuity factor = (1.08^9 - 1 ) / 0.08 = 12.487558

$24,800,000 / 12.487558 = $1,985,976.79