The Houston Texans’ fifth-year pitcher Juan Alvarez made the All-Star team in 2010. Alvarez has three years left on a contract that is to pay him $2.4 million a year. He wants to renegotiate his contract because other players who have equally outstanding records (although they also have more experience) are receiving as much as $10.5 million per year for five years. Management has a policy of never renegotiating a current contract but is willing to consider extending the contract to additional years. In fact, the Texans have offered Alvarez an additional three years at $6.0 million, $9.0 million, and $12.0 million, respectively. In addition, they have added an option year at $15.0 million. Management points out that this package is worth $42.0 million, or $10.5 million per year on average. Alvarez is considering this offer and is also considering asking for a bonus to be paid upon signing the contract. 

Write a memorandum to Alvarez that comments on management’s position and evaluates the offer, assuming a current interest rate of 10 percent.