Present Value and Sports Salaries Study Appendix 9. Rangers break the bank, sign Alex Rodriguez for 10

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Present Value and Sports Salaries Study Appendix 9. "Rangers break the bank, sign Alex Rodriguez for 10 years, $252 million" read the headline in the December 12, 2000 Dallas newspaper. The contract has several parts: (1) a $10 million signing bonus paid over 5 years at $2,000,000 per year; (2) salary of $21 million per year for 2001, 2002, 2003, and 2004; (3) salary of $25 million per year for 2005 and 2006; and (4) salary of $27 million per year for 2007 through 2010. Assume that Rodriguez signed the contract on December 1, 2000, that the Rangers made each payment on December 1 of the respective years, and that the appropriate discount rate is 10%. 1. What was the present value of the contract on the day it was signed? 2. How much present value (as of December 1, 2000) did Rodriguez lose by receiving the $10 mil- lion payment over 5 years instead of immediately? 3. Do you agree that the contract was worth $252 million? Explain. Collaborative Learning Exercises

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Introduction To Financial Accounting

ISBN: 0131479725

9th Edition

Authors: Charles T Horngren, John A Elliott

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