16. Application of Time Value of Money Skilis Nick Nohitter has been playing baseball since he was five years old and has always dreamed of playing in the big leagues, Last season, he was a starting pitcher for a double-A (AN)-level baseball team, the Pioswell Extraterrestrias; last year, he was the first runner-up for the Minor League Player of the Year award. Using his 93mph fastball, an impeccoble curve ball and shider, and a relable changeup pitch, he achieved a 15.2 win-loss recoed. an esmed run average (ERA) of 2.76, and 123 strikeouts in 99.1 innings pitched. He is also your best friend. Two weeks ago, on his three-year anniversary with the team, Nick recelved the following email from his agent, Marty Fineprint, indicating that be is being called us to the Mobile Bayhoppers, the Citrateriestrials's corresponding Major League Baseball (MLB) team, Moreover, Nick's contract is tieing revised to refect his new status. The email deseribes the general terms and conditions of Nick's revised controct. Fromi Marty Fineprint To: Nick Nohitter Subject: Now Team, New Contract Proposal Nick, Neck is so excitedt According to Marty, the contract is worth $2,836,400 - assuming recolpt of all possible bonuses. Ater reresding the eiral twice and calling his family, Nick esled you to review the terms of the contract and verify Matty's calculations. After an extended cotversation about what hel Go with his nenfound woalth, you and Nick have agreed that any funds received could be invested to earn 5.50%, compounded menthly. 16. Application of Time Value of Maney skin's Nick Nahitter has been playing basebal since he was five years old and has always dreamed of playing ti the blg leagues, Last seachn, he was a starting pitcher for a double-A (AA) -level baseball tesen, the Roswell Extraterrestrials; last yex, he was the first runser inp for the Mins leopue Parer of the Year award. Using his 93 miph fastbes, an impeccatie curve ball and slidet, and a relable changeup pitch, he schinved a 152 win-toss record. an earned run averoge (ERA) of 2.76, and 123 strikecuts in 99.1 innings pitched. He is also your best frienc. Two weeks ago, an his thiree- pear anniversary with the team, Nick received the fotowing emal from his agent, Marty Fineecrint, indicating that be is being called up to the Mobtle Bayhoppers, the Extraterrestrials's corresponding Majer Leopue Baseball (MLB) tearn. Moreover, Nick's contract is being revised to reflect his new status. The email describes the general terms and conditions of Nick's revised contract. Nick is so excited According to Marty, the contract is worth $2,836,400-assuming receigt of all possible banusec. Atter rereading the email twice and calling his famil. Nick called you to review the terms of the contract and verify Marty's caiculations. Ater an extended conversation about what hell do with his newfound wealth, you and Aick hive agreed that any funds received could be invested to earn 5,50%, compounded montily. saris AavoW jo anjeh ouph jo uopesiddy '9r Q Courses 16. Application of Time Valun of Money Sicills (1) Catalog and Study Tooks BatCareerSuccessTipsTwowecksago,onhisthreevearanniversarywiththeteam,Nickrecelivedthefollowingemsttromhisagent,Mar (3) Help (1) Give Feedback revised to reflect his new statis. The email describes the general terms and conditions of Nick's revised contract. - The Player is offered a performance-based bonus, as well as a milestone bonus. Both are intended to encourage cutstanding performance. - The Player is cefered the following award-based performance incentive: a 15% bonus if he is designated as the Most valuable Ployer (MVP) in the league. The Player is also offered the following miestene bonus: a $75,000 bonus if he ties Nolsn Ryan's 1973 single-sesson strikeout record ( 383 strikeeuts). - The Ployer is eligible for each potenval bonus each year that the contract is in effect and, if expressed as a percentage, will be based on the value of the Nek is so exdend According to Marty, the contract is warth $2,836,400-assuming receipe of all possible bonuses. Ater rereading the email twice and cailing his family, Nick called you to review the terins of the contract and verity Marty's calculations, After an extended corversatisa abovit what herlil do with ris newfound wealth you and Nick have ogreed that any funds received could be invested to earn 5.50%, compounded monthiy. 16. Application of Time Value of Money Skinis Nick Nohitter has been playing basebal since he was five years old and has always dreamed of planing in the big lesgues, Last seaseo, he was a starting pecter for o dowble-A (AA)-level baseball team, the Roswell Exthaterrestrials; iast yeac, he was the first runner-up for the Mner Lebpue Player of the Year award, Using his 93 mph fastball, an impeccable curve ball and slides, and a relable changeup pitch, he achieved a is-2 win-loss record, an earned run average (ERA) of 2.76, and 123 strikeouts in 99.1 innings pitched. He is also your best friend. Two weeks ago, on his theee-year anniversary with the team, Nick recelved the following email from his agent, Narty Fineprint, indicating that hie is being calind up to the Mobile Baphoppers, the Extraterestrals's corresponding Major League Basebsl (MLB) team. Moreover, Nekis contract is being revised to reflect his new status. The emal descibes the general terms and condetions of Nick's revised contract. Ployer's base annual salary for the corresponding yesr. If eamed, the performance and milestone bonuses will be distributed in a single perment at the beginning of the next contract year. Although this proposal describes only one milestone, the sctual contract contains several progressive milestentes. Greeding one milestene creates the opportunity to exceed another. In addition to the proposal offered by the Bayhoppers, Fve also been atle to secure the following endorsement opportunity: Nick is so excited According to Marty, the contrect is werth $2,836,400-assuming recelpt of all possible bonuses. Atter rereading the emait twick and caling his famiy. Nick calied you to review the terms of the contract and verify Martys calculations. After an eatended conversotion about what hin 11 So with his hewfound wealth, you and Nick have agreed that any funds received could be invested to earn. 5.50%, compounded monthiy. 16. Application of Time Value of Money Skilis Nick Nohitter has been playing baseball since he was five yesis eld and has always dreamed of playing in the big leagues. Last season, he was a starting pitcher for a double-A (AA)-level basebst team, the Roswell Extraterrestrials; tast year, he was the first rutner-up for the Minar League fiayer of the Year award. Using his 93 mph fastball, an impeccable curve ball and stider, and a reliable changeup pitch, he achieved a 15 -2 win-loss recordi an earned run average (ERA) of 2.76, and 123 strikeouts in 99.1 innings pitched, He is alko your best fiend. Two weeks ago, on his thren-year acniversary with the team, Nick recelved the following email from his agent, Marty Fineprint, indicating that he it being calied up to the Moble Bayhoppers, the Extraterrestrials's corresponding Major League Baseball (Mis) team. Moreovec, Nick's contract is beling revised to reflect his new statias. The email describes the general teems and conditions of Nick's revised contract. A local car dealer has ceteced you a controct that will pay $750 per month for two years. This contract is contingert on your accepting the contract with the Byhoppers and will take effect immed ately upon sligning your MLB contract. In return for these payments. You wil participate in the dealer's promotionel events, such as wigning autographs and allowing photographs as requested. Tve also attachied a worksheet that you can use to analyre the deal, I'm in negotiations for the rest of the dayy so let's descuss your theughts on the contract proposal tomorraw. I'm proud of yout Nick is to excited According to Marty, the contract is worth 12.636,400-assuming recept of all possible bonuset. Aher rereaditig the nmall ticice and caling Nit famili. Nick called you to review the terms of the coetract and verify Marty's calculatices. Mer an entended coeversation about what heril da with his nowfound weath, you and Nick have agresd that any funds received could be invested to earn 5.50.w. compounded monthly. Nick is so exctedt According to Marty, the contract is worth $2,836,400-assuning receipt of all possible bonuses, After rereading the emaili twice and caling his family. Nick called you to review the terms of the contract and verify Marty's calculations. After an extended conversation about what he'l do with his newfound wealth, you and Nick have agreed that any funds received could be invested to earn 5.50 To, compounded monthly. Contract Evaluation Worksheet Complete the folloining worksheet by inserting the appropriate values to evaluate the contract and answer the related questiont. Note: To ciarify possible soutces of confusion and simplify your calculations: - Rssume that all bonieses are earned in each of the years for which they are avaisbie and are paid at the end of the comesponding year(s), Unless specificaly stated ciferenty. They value chould be based an the salary in effect at the time the benises ware earned. - The endorsernent proceeds are paid in sccordance with the terms of the deal: - Hemember that the timing of a cash flow affects the interest rate that is used to discount the cash fow. For example, annual interest rates should be Lised to discount annual cash flows, and monthly interest rates are used to discount monthly cash ficws. Therofore, if may be necessary to compute the apcroprlate interest rate that sheuld be used in a discourting calculation. - Round all dollar anounts to the noarest whole dolter and carry out ali interest rate lactors to four decirmal piaces. - When ercering intermediate values as answer cholces, be sure to round them to the nearest doliar, however when uling those saime yalues to calcilate another answec, do hot rourd. Nick Nohitter's Contract Evaluation Worksheet Ch 05: Assignment-Time Value of Monty cengage.com/staticb/uifevo/index.html?elSeNa97813379110098.snapshotld=29028728id=14670242068 Ch 05: Assignment - Time Value of Money 16 \begin{tabular}{ll|l|} \hline 17 & Milestone Bonus \\ 18 & Discount foctor (based on \\ & Cell B5 above) \\ 19 & Discounted Milestone Bonus & \\ \hline 20 & & \\ \hline \end{tabular} Endorsement Payment 28 29 Contract's Total Nominal Value 30 Contract's Total Discounted Value talog and Study Tools ental Options allege Success Tips areer Success Tips 1. Given your woiksheet calculations, which of the followng statements is accurate? Is Marty's estimate of the value of Nick's contract accurate on either a nominal or discounted basis? Check af that opply. It is appropelate and necessary to dscount the performance bonus using the bank account's effective annual interes mate becasise of differences in the timing of the cempounding of the bank sccount and that of the payments for the performance bonus. Marty's estimate of the value of Nicks controct is incorrect on a nominal basis, and the error is $39,239. It is appropriate and necessary to discount the endorsement contract using the bank account's effective annual internst rafe because of differences in the timing of the compounding of the bank account and that of the payments on the endorsement contract. Related Question. The local cat dealer creating Nick's endorsement opportunity can earn 6% (compounded quarterif) on his deposited funds. 5 he would have to deposit each quarter, starting exactly two years before the day Nick signs his contratt, to fund her endorsement contract. [Note: The future value interest foctor of 6% compounded quarterly for eight quarterfy periods is 8.4328 ] 16. Application of Time Value of Money Skilis Nick Nohitter has been playing baseball since he was five years old and has always dreamed of playing in the big leagues, Last season, he was a starting pitcher for a double-A (AN)-level baseball team, the Pioswell Extraterrestrias; last year, he was the first runner-up for the Minor League Player of the Year award. Using his 93mph fastball, an impeccoble curve ball and shider, and a relable changeup pitch, he achieved a 15.2 win-loss recoed. an esmed run average (ERA) of 2.76, and 123 strikeouts in 99.1 innings pitched. He is also your best friend. Two weeks ago, on his three-year anniversary with the team, Nick recelved the following email from his agent, Marty Fineprint, indicating that be is being called us to the Mobile Bayhoppers, the Citrateriestrials's corresponding Major League Baseball (MLB) team, Moreover, Nick's contract is tieing revised to refect his new status. The email deseribes the general terms and conditions of Nick's revised controct. Fromi Marty Fineprint To: Nick Nohitter Subject: Now Team, New Contract Proposal Nick, Neck is so excitedt According to Marty, the contract is worth $2,836,400 - assuming recolpt of all possible bonuses. Ater reresding the eiral twice and calling his family, Nick esled you to review the terms of the contract and verify Matty's calculations. After an extended cotversation about what hel Go with his nenfound woalth, you and Nick have agreed that any funds received could be invested to earn 5.50%, compounded menthly. 16. Application of Time Value of Maney skin's Nick Nahitter has been playing basebal since he was five years old and has always dreamed of playing ti the blg leagues, Last seachn, he was a starting pitcher for a double-A (AA) -level baseball tesen, the Roswell Extraterrestrials; last yex, he was the first runser inp for the Mins leopue Parer of the Year award. Using his 93 miph fastbes, an impeccatie curve ball and slidet, and a relable changeup pitch, he schinved a 152 win-toss record. an earned run averoge (ERA) of 2.76, and 123 strikecuts in 99.1 innings pitched. He is also your best frienc. Two weeks ago, an his thiree- pear anniversary with the team, Nick received the fotowing emal from his agent, Marty Fineecrint, indicating that be is being called up to the Mobtle Bayhoppers, the Extraterrestrials's corresponding Majer Leopue Baseball (MLB) tearn. Moreover, Nick's contract is being revised to reflect his new status. The email describes the general terms and conditions of Nick's revised contract. Nick is so excited According to Marty, the contract is worth $2,836,400-assuming receigt of all possible banusec. Atter rereading the email twice and calling his famil. Nick called you to review the terms of the contract and verify Marty's caiculations. Ater an extended conversation about what hell do with his newfound wealth, you and Aick hive agreed that any funds received could be invested to earn 5,50%, compounded montily. saris AavoW jo anjeh ouph jo uopesiddy '9r Q Courses 16. Application of Time Valun of Money Sicills (1) Catalog and Study Tooks BatCareerSuccessTipsTwowecksago,onhisthreevearanniversarywiththeteam,Nickrecelivedthefollowingemsttromhisagent,Mar (3) Help (1) Give Feedback revised to reflect his new statis. The email describes the general terms and conditions of Nick's revised contract. - The Player is offered a performance-based bonus, as well as a milestone bonus. Both are intended to encourage cutstanding performance. - The Player is cefered the following award-based performance incentive: a 15% bonus if he is designated as the Most valuable Ployer (MVP) in the league. The Player is also offered the following miestene bonus: a $75,000 bonus if he ties Nolsn Ryan's 1973 single-sesson strikeout record ( 383 strikeeuts). - The Ployer is eligible for each potenval bonus each year that the contract is in effect and, if expressed as a percentage, will be based on the value of the Nek is so exdend According to Marty, the contract is warth $2,836,400-assuming receipe of all possible bonuses. Ater rereading the email twice and cailing his family, Nick called you to review the terins of the contract and verity Marty's calculations, After an extended corversatisa abovit what herlil do with ris newfound wealth you and Nick have ogreed that any funds received could be invested to earn 5.50%, compounded monthiy. 16. Application of Time Value of Money Skinis Nick Nohitter has been playing basebal since he was five years old and has always dreamed of planing in the big lesgues, Last seaseo, he was a starting pecter for o dowble-A (AA)-level baseball team, the Roswell Exthaterrestrials; iast yeac, he was the first runner-up for the Mner Lebpue Player of the Year award, Using his 93 mph fastball, an impeccable curve ball and slides, and a relable changeup pitch, he achieved a is-2 win-loss record, an earned run average (ERA) of 2.76, and 123 strikeouts in 99.1 innings pitched. He is also your best friend. Two weeks ago, on his theee-year anniversary with the team, Nick recelved the following email from his agent, Narty Fineprint, indicating that hie is being calind up to the Mobile Baphoppers, the Extraterestrals's corresponding Major League Basebsl (MLB) team. Moreover, Nekis contract is being revised to reflect his new status. The emal descibes the general terms and condetions of Nick's revised contract. Ployer's base annual salary for the corresponding yesr. If eamed, the performance and milestone bonuses will be distributed in a single perment at the beginning of the next contract year. Although this proposal describes only one milestone, the sctual contract contains several progressive milestentes. Greeding one milestene creates the opportunity to exceed another. In addition to the proposal offered by the Bayhoppers, Fve also been atle to secure the following endorsement opportunity: Nick is so excited According to Marty, the contrect is werth $2,836,400-assuming recelpt of all possible bonuses. Atter rereading the emait twick and caling his famiy. Nick calied you to review the terms of the contract and verify Martys calculations. After an eatended conversotion about what hin 11 So with his hewfound wealth, you and Nick have agreed that any funds received could be invested to earn. 5.50%, compounded monthiy. 16. Application of Time Value of Money Skilis Nick Nohitter has been playing baseball since he was five yesis eld and has always dreamed of playing in the big leagues. Last season, he was a starting pitcher for a double-A (AA)-level basebst team, the Roswell Extraterrestrials; tast year, he was the first rutner-up for the Minar League fiayer of the Year award. Using his 93 mph fastball, an impeccable curve ball and stider, and a reliable changeup pitch, he achieved a 15 -2 win-loss recordi an earned run average (ERA) of 2.76, and 123 strikeouts in 99.1 innings pitched, He is alko your best fiend. Two weeks ago, on his thren-year acniversary with the team, Nick recelved the following email from his agent, Marty Fineprint, indicating that he it being calied up to the Moble Bayhoppers, the Extraterrestrials's corresponding Major League Baseball (Mis) team. Moreovec, Nick's contract is beling revised to reflect his new statias. The email describes the general teems and conditions of Nick's revised contract. A local car dealer has ceteced you a controct that will pay $750 per month for two years. This contract is contingert on your accepting the contract with the Byhoppers and will take effect immed ately upon sligning your MLB contract. In return for these payments. You wil participate in the dealer's promotionel events, such as wigning autographs and allowing photographs as requested. Tve also attachied a worksheet that you can use to analyre the deal, I'm in negotiations for the rest of the dayy so let's descuss your theughts on the contract proposal tomorraw. I'm proud of yout Nick is to excited According to Marty, the contract is worth 12.636,400-assuming recept of all possible bonuset. Aher rereaditig the nmall ticice and caling Nit famili. Nick called you to review the terms of the coetract and verify Marty's calculatices. Mer an entended coeversation about what heril da with his nowfound weath, you and Nick have agresd that any funds received could be invested to earn 5.50.w. compounded monthly. Nick is so exctedt According to Marty, the contract is worth $2,836,400-assuning receipt of all possible bonuses, After rereading the emaili twice and caling his family. Nick called you to review the terms of the contract and verify Marty's calculations. After an extended conversation about what he'l do with his newfound wealth, you and Nick have agreed that any funds received could be invested to earn 5.50 To, compounded monthly. Contract Evaluation Worksheet Complete the folloining worksheet by inserting the appropriate values to evaluate the contract and answer the related questiont. Note: To ciarify possible soutces of confusion and simplify your calculations: - Rssume that all bonieses are earned in each of the years for which they are avaisbie and are paid at the end of the comesponding year(s), Unless specificaly stated ciferenty. They value chould be based an the salary in effect at the time the benises ware earned. - The endorsernent proceeds are paid in sccordance with the terms of the deal: - Hemember that the timing of a cash flow affects the interest rate that is used to discount the cash fow. For example, annual interest rates should be Lised to discount annual cash flows, and monthly interest rates are used to discount monthly cash ficws. Therofore, if may be necessary to compute the apcroprlate interest rate that sheuld be used in a discourting calculation. - Round all dollar anounts to the noarest whole dolter and carry out ali interest rate lactors to four decirmal piaces. - When ercering intermediate values as answer cholces, be sure to round them to the nearest doliar, however when uling those saime yalues to calcilate another answec, do hot rourd. Nick Nohitter's Contract Evaluation Worksheet Ch 05: Assignment-Time Value of Monty cengage.com/staticb/uifevo/index.html?elSeNa97813379110098.snapshotld=29028728id=14670242068 Ch 05: Assignment - Time Value of Money 16 \begin{tabular}{ll|l|} \hline 17 & Milestone Bonus \\ 18 & Discount foctor (based on \\ & Cell B5 above) \\ 19 & Discounted Milestone Bonus & \\ \hline 20 & & \\ \hline \end{tabular} Endorsement Payment 28 29 Contract's Total Nominal Value 30 Contract's Total Discounted Value talog and Study Tools ental Options allege Success Tips areer Success Tips 1. Given your woiksheet calculations, which of the followng statements is accurate? Is Marty's estimate of the value of Nick's contract accurate on either a nominal or discounted basis? Check af that opply. It is appropelate and necessary to dscount the performance bonus using the bank account's effective annual interes mate becasise of differences in the timing of the cempounding of the bank sccount and that of the payments for the performance bonus. Marty's estimate of the value of Nicks controct is incorrect on a nominal basis, and the error is $39,239. It is appropriate and necessary to discount the endorsement contract using the bank account's effective annual internst rafe because of differences in the timing of the compounding of the bank account and that of the payments on the endorsement contract. Related Question. The local cat dealer creating Nick's endorsement opportunity can earn 6% (compounded quarterif) on his deposited funds. 5 he would have to deposit each quarter, starting exactly two years before the day Nick signs his contratt, to fund her endorsement contract. [Note: The future value interest foctor of 6% compounded quarterly for eight quarterfy periods is 8.4328 ]