A professional football player has a contract on hand at the beginning of 2015 season. He will earn either $11,406.000 (deferred plan) over 12 years or $8,600,000 (non-deferred plan) over 6 years. He must declare which plan he prefers. The $11 million package is deferred through the year 2026, while the non-deferred arrangement ends after the 2020 seas on. Regardless of which plan is chosen, he will be playing through the 2020 season.
(a) Details of the two plans are given in Table P5.58. If his interest rate is 6%. which plan is more attractive?

(b) At what interest rate would the two plans be economically equivalent?

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TABLE P5.58 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Total Deferred Plan $2,000,000 566,000 920,000 930,000 740,000 740,000 740,000 790,000 540,000 1,040,000 1,140,000 1,260,000 $11,406,000 Nondeferred Plan 2015 2016 2017 2018 2019 2020 Total $2,000,000 900,000 1,000,000 1,225,000 1,500,000 1,975,000 $8,600,000