Assume DHL needs access to a stream of capital for the next

Assume DHL needs access to a stream of capital for the next 10 years. If DHL needs $2.5 million per year and can earn 4% interest compounded annually, how much must the company put away today to have these funds when needed? Use Table 13.2.

$26,000,000

$30,015,267

$25,000,000<<I know that isnt the answer

$20,277,250

TABLE 13.2 Present value of an annuity of $I 12%. Period 0% 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9804 0.9174 0.909 0.9009 0.8929 0.8850 1.9416 9135 1.886 8594 8334 1.8080 7833 759 7355 7125 690 668 2.8839 2.8286 2.775 2.7232 2.6730 2.6243 2.577 2.5313 2.4869 2.4437 2.4018 2.3612 3.8077 3.7171 3.6299 3.5459 3465 3.3872 3.312 3.2397 3.1699 3.1024 3.0373 2.9745 4.5797 4.7134 4.4518 4.3295 4.2124 4.1002 3.9927 3.8897 3.7908 3.6959 3.6048 3.5172 5.6014 5.4172 5.242 5.0757 4.9173 4.7665 4.6229 4.4859 4.3553 4.2305 4. Il 4 3.9975 6.4720 6.2303 6.002 5.7864 5.5824 5.3893 5.2064 5.0330 4.8684 4.7122 4.5638 4.4226 7.3255 7.0197 6.7327 6.4632 6.2098 5.9713 5.7466 5.5348 5.3349 5. 46 I 4.9676 4.7988 5.9952 5.7590 5.5370 5.3282 5.1317 8.1622 7.786 I 7.4353 7.1078 6.8017 6.5152 6.2469 8.9826 8.5302 8.1109 7.7217 7.360 7.0236 6.710 6.4177 6.1446 5.8892 5.6502 5.4262 9.7868 9.2526 8.7605 8.3064 7.8869 7.4987 7.1390 6.8052 6.495 6.2065 5.9377 5.6869 0.5753 9.9540 9.385 l 8.8632 8.3838 7.9427 7.536 l 7.1607 6.8137 6.4924 6.1944 5.9176 I 3483 0.6350 9.9856 9.3936 8.8527 8.3576 7.9038 7.4869 7.1034 6.7499 6.4235 6.1218 12.1062 296 0.563 l 9.8986 9.2950 8.7455 8.2442 7.7862 7.3667 6.9819 6.6282 6.3025 15 128492 Il 9379 11.1184 6.4624 0.3796 8.0607 7.1909 6.8109 14.9920 13.7535 12.6593 1.6896 10.8276 10.059 9.3719 8.7556 8.2014 7.7016 7.2497 6.8399 15.6784 14.3238 13.1339 12.0853 11.1581 10.3356 9.6036 8.9501 8.3649 7.8393 7.3658 6.9380 16.35 4 I4,8775 13.5903 12.4622 II.4699 10.5940 9.8181 9.1285 8.5136 7.9633 7.4694 7.0248 30 40

Solution

4% , t =   10 years

from table 8.1109

it means

for 8.1109 $ you will get 1 $ each year for 10 consecutive year.

but we need 2.5 million

hence net amount is 2.5 million * 8 .1109

= 20277250

option 4) is correct