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The Yankee's have a contract with their newly hired manager that requires a lump sum payment...

The Yankee's have a contract with their newly hired manager that requires a lump sum payment of $25,000,000 be paid at the completion of her first 8 years. The Yankees want to set aside an equal amount of money each year to cover this anticipated cash outflow. If the Yankees can earn 7 percent on these funds, how much must they set aside at the end of each year?

  • A. $2,363,593.24

  • B. $2,436,694.06

  • C. $1,931,435.03

  • D. $2,368,832.13

  • E. $1,750,000.00

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Answer #1

Future value of annuity=Annuity[(1+rate)^time period-1]/rate

25,000,000=Annuity[(1.07)^8-1]/0.07

25,000,000=Annuity*10.2598026

Annuity=25,000,000/10.2598026

=$2436694.06(Approx).

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