Zulu Corporation hires a new chief executive officer and promises to pay her a signing bonus of $2 million per year for 10 years, starting five years after she joins the company. The liability for this bonus when the CEO is hired:

The present value of the deferred annuity payments that the company will pay to its CEO

Explanation:

This can be calculated using an appropriate discount rate. Suppose the discount rate is 10% and the present value of payment reciept in the year 6, 7, 8, 9 and 10 will be calculated using the following formula:

Present Value = Cash flow * 1 / (1+r) ^n

PV of Yr 6 payment = $2 million * 1 / (1+10%) ^6 = $2 million * 0.564 = $1.13M

PV of Yr 7 payment = $2 million * 1 / (1+10%) ^7 = $2 million * 0.513 = $1.03M

PV of Yr 8 payment = $2 million * 1 / (1+10%) ^8 = $2 million * 0.467 = $0.933M

PV of Yr 9 payment = $2 million * 1 / (1+10%) ^9 = $2 million * 0.424 = $0.848M

PV of Yr 10 payment = $2 million * 1 / (1+10%) ^10 = $2 million * 0.386 = $0.771M

So the total liability = $1.13M + $1.03M + $0.933M + $0.848M + $0.771M = $4.652. So this is the liability on a discount rate 10% choosen.