16. Application of Time Value of Money Skilis Saleem Swingman 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 pitther for a double-A (AA)-level baseball team, the Ketchum Baldes, last year, he was the first runner-up for the Minor League Piayer of the Year award. Using his 93 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, hit achieved a 152 win-loss record, an earned run averafe (ERA) of 2.76, and 123 strikeouts in 99.1 innings pitched. He is alto your best friend: Two weeks ago, on his three-vear anniversary with the team, Saleem received the following emal from his agent, Noah Never-Enough, indicating that he is being called up to the Springfield Dusties, the Baldies's cotresponding Major League Baseball (MiB) team. Morecver, Saleem's contract is being revised to reflect his new status. The email describes the general terms and conditions of saleem's revised conthact. Saleem is so excited According to Noah, the contract is worth $2,564,400-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 Noah'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 5.50%, compounded monthly. Contract Evaluation Worksheet Complete the following worksheet by inserting the appropriate values to evaluate the contract and answer the related questions: Note: To clarify possible sources of confusion and simpiffy your calculations: - Assume that ali bonuses are earned in each of the years for which they are avaliable and are paid at the end of the corresponding year(s), unless specifically stated differently. Their value should be based on the salary in effect at the time the bonises were earned. - The endorsement proceeds are paid in accordance with the terms of the deal. - Remember that the timing of a cash flow affects the interest rate that is used to discount the cash fow. For exampie, anmul interest rates should be used to discount annual cash flows, and monthly interest rates are used to discount monthly cash flows. Therefore, It may be necessary to compute the appropriate interest rate that should be used in a discounting calculation. - Round all dollar amounts to the nearest whole doliar and carry out all interest rate factors to four decimal places. - When entering intermediate values as answer choices, be sure to round them to the nearest dollar, however when using those samet values to calculate another answer, do not round. Saleem Swingman's Contract Evaluation Worksheet 1. Given your worksheet calculations, which of the foliowing statements is accurate? is Noah's estimate of the value of Salcem's contract accurate on elther a nominal or discounted basis? Check all that apply. It is appropriate and necossary to discount the endorsement contract using the bank account's effective annual linterest rate bectuse of differences in the timing of the compounding of the bank account and that of the payments on the endorsement contract. It is approprlate and necessary to discount the performance borus using the bank sccount's effective annual interest rate bectuse of differences in the timing of the compounding of the bank account and that of the payments for the performance bonus: Noah's estimate of the value of 5 aleem's contract is incorrect on a hominal basis, and the error is $31,939. Related Questiont The local car dealer creating Saleem's endorsement opportunity can eam 6 is (compounded quarterly) on his deposted funds. She would have to deposit each quarter, starting exactiy two years before the doy saieem sogns his contract, to fund herendorsement contract. [Note: The future value interest factor of 696 compounded quarterty for elght quarteriy periods is 8.4328. ] 16. Application of Time Value of Money Skilis Saleem Swingman 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 pitther for a double-A (AA)-level baseball team, the Ketchum Baldes, last year, he was the first runner-up for the Minor League Piayer of the Year award. Using his 93 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, hit achieved a 152 win-loss record, an earned run averafe (ERA) of 2.76, and 123 strikeouts in 99.1 innings pitched. He is alto your best friend: Two weeks ago, on his three-vear anniversary with the team, Saleem received the following emal from his agent, Noah Never-Enough, indicating that he is being called up to the Springfield Dusties, the Baldies's cotresponding Major League Baseball (MiB) team. Morecver, Saleem's contract is being revised to reflect his new status. The email describes the general terms and conditions of saleem's revised conthact. Saleem is so excited According to Noah, the contract is worth $2,564,400-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 Noah'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 5.50%, compounded monthly. Contract Evaluation Worksheet Complete the following worksheet by inserting the appropriate values to evaluate the contract and answer the related questions: Note: To clarify possible sources of confusion and simpiffy your calculations: - Assume that ali bonuses are earned in each of the years for which they are avaliable and are paid at the end of the corresponding year(s), unless specifically stated differently. Their value should be based on the salary in effect at the time the bonises were earned. - The endorsement proceeds are paid in accordance with the terms of the deal. - Remember that the timing of a cash flow affects the interest rate that is used to discount the cash fow. For exampie, anmul interest rates should be used to discount annual cash flows, and monthly interest rates are used to discount monthly cash flows. Therefore, It may be necessary to compute the appropriate interest rate that should be used in a discounting calculation. - Round all dollar amounts to the nearest whole doliar and carry out all interest rate factors to four decimal places. - When entering intermediate values as answer choices, be sure to round them to the nearest dollar, however when using those samet values to calculate another answer, do not round. Saleem Swingman's Contract Evaluation Worksheet 1. Given your worksheet calculations, which of the foliowing statements is accurate? is Noah's estimate of the value of Salcem's contract accurate on elther a nominal or discounted basis? Check all that apply. It is appropriate and necossary to discount the endorsement contract using the bank account's effective annual linterest rate bectuse of differences in the timing of the compounding of the bank account and that of the payments on the endorsement contract. It is approprlate and necessary to discount the performance borus using the bank sccount's effective annual interest rate bectuse of differences in the timing of the compounding of the bank account and that of the payments for the performance bonus: Noah's estimate of the value of 5 aleem's contract is incorrect on a hominal basis, and the error is $31,939. Related Questiont The local car dealer creating Saleem's endorsement opportunity can eam 6 is (compounded quarterly) on his deposted funds. She would have to deposit each quarter, starting exactiy two years before the doy saieem sogns his contract, to fund herendorsement contract. [Note: The future value interest factor of 696 compounded quarterty for elght quarteriy periods is 8.4328. ]