Problem:

The Great Giant Corp. has a management contract with its newly hired president. The contract requires a lump sum payment of $25,000,000 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.

Required:

Question: How much must the company set aside each year for this purpose?

• $2,436,694.06
• $1,931,435.03
• $2,368,832.13
• $1,750,000.00
• $2,363,593.24

Note: Please show how you came up with the solution.