1. Application of Time Value of Money Skills Saleem Swingman has been playing basehall einen Salary and Incentives: Saleem Swingman hereafter referred to as the "Player," is offered a four-year contract with an annual salary of $594,000 per year, to be paid at the end of each month in the contract term. . Under the league's collective bargaining agreement, the player will receive a 4% cost-of-living adjustment (COLA) to his annual salary at the beginning of every other year. This means that the player's annual salary will increase at the beginning of year 2 and year 4, as applicable. In addition, the player will receive a one-time $20,000 time-in-league bonus after six months of participation with an MLB team. This bonus will be paid immediately on completion of the six-month period. The Player is offered a performance-based bonus, as well as a milestone bonus. Both are intended to encourage outstanding performance. The Player is offered the following award-based performance incentive: a 15% bonus if he is designated as the Most Valuable Player (MVP) in the league. The player is also offered the following milestone bonus: a $100,000 bonus if he ties Nolan Ryan's 1973 single-season strikeout record (383 The Player is eligible for each potential bonus each year that the contract is in effect and, if expressed as a percentage, will be based on the value of the Player's base annual salary for the corresponding year. If earned, the performance and milestone bonuses will be distributed in a single payment at the beginning of the next contract year. Although this proposal describes only one milestone, the actual contract contains several progressive milestones. Exceeding one milestone creates the opportunity to exceed another. In addition to the proposal offered by the Dusties, I've also been able to secure the following endorsement opportunity: A local car dealer has offered you a contract that will pay $3,000 per month for two years. This contract is contingent on your accepting the contract with the Dusties and will take effect immediately upon signing your MLB contract. In return for these payments, you will participate in the dealer's promotional events, such as signing autographs and allowing photographs as requested. Saleem is so excited! According to George, the contract is worth $3,212,400-assuming receipt of all possible bonuses. After rereading the email twice and calling his family, Saleem called you to review the terms of the contract and verify George's calculations. After an extended conversation about what he'll do with his newfound wealth, you and Saleem have agreed that any funds received could be invested to earn 7.50%, compounded monthly Saleem Swingman's Contract Evaluation Worksheet 1 2 750 Assumptions and Calculated Values Bank Rate Information: Saleem's Bank Account Rate (compounded monthly) Monthly Bank Rate Effective Annual interest Rate Year 1 Year 2 Year 3 Year 4 Total value 8 9 10 Salary and Bonus Information Annual Salary (4% COLA) Monthly Salary Discount factor (based on Cell 4 above) 11.5264 10.6960 9.9255 9.2105 12 13 14 0.9633 Time-in-League Bonus Discount factor (based on Cell B4 above) Discounted Time-in- League Bonus 15 16 17 18 0.9280 0.8611 0.7991 0.7415 Milestone Bonus Discount factor (based on Cell B5 above) Discounted Milestone Bonus 19 EM 0.9280 0,8611 21 Performance Bonus Discount factor (based on Cell BS above) 23 Discounted Performance Bonus 25 Monthly Endorsement Contract Payment 11.5264 10.6960 25 Monthly Endorsement Contract Payment 26 Discount factor (based on Cell B4 above) 27 Discounted Monthly Endorsement Payment 29 Contract's Total Nominal Value Contract's Total Discounted Value 30