Question
A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 10%. He has been offered three possible 4-year contracts. Payments are guaranteed,
A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 10%. He has been offered three possible 4-year contracts. Payments are guaranteed, and they would be made at the end of each year. Terms of each contract are as follows:
1 2 3 4
Contract 1 $2,500,000 $2,500,000 $2,500,000 $2,500,000
Contract 2 $2,500,000 $3,500,000 $4,000,000 $5,500,000
Contract 3 $6,500,000 $1,500,000 $1,500,000 $1,500,000
As his adviser, which contract would you recommend that he accept? Select the correct answer.
a. Contract 3 gives the quarterback the highest future value; therefore, he should accept Contract 3.
b. Contract 2 gives the quarterback the highest present value; therefore, he should accept Contract 2.
c. Contract 1 gives the quarterback the highest future value; therefore, he should accept Contract 1.
d. Contract 3 gives the quarterback the highest present value; therefore, he should accept Contract 3.
e. Contract 1 gives the quarterback the highest present value; therefore, he should accept Contract 1.
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