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An MLB baseball player is offered a five-year contract in the payment schedule as follows: Year 0 $ 2,000,000.00 (signing bonus) 1 $ 2,500,000.00 2
An MLB baseball player is offered a five-year contract in the payment schedule as follows:
Year |
|
|
0 | $ 2,000,000.00 | (signing bonus) |
1 | $ 2,500,000.00 |
|
2 | $ 2,500,000.00 |
|
3 | $ 3,000,000.00 |
|
4 | $ 3,000,000.00 |
|
5 | $ 2,800,000.00 |
|
- Assume the interest rate is 8%. What is present value of his contract? (10%)
- The player wants to see his paycheck increase 5% each year. That is, his next years pay is 5% higher than whatever the signing bonus is, and the second years pay is 5% higher than the first years pay and so on. If you are the manager of the team, how his payment schedule should be rearranged and the present value of his contract can stay the same? (20%) Your answer worksheet should:
- Specify the Excel functions that you used.
- Tabulate the original pay schedule and new pay schedule and calculated the PV.
- Show how each years pay is linked with previous years pay in the output data cells.
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