Application of Time Value of Money Skills
I need to fill out the chart and I am confused with some of the problems, the chart is on the third photo.
Thanks.
The last important detail is the endorsement deal that I've found for you. A restaurant owner in Springfield will pay you $200 per month to spend a maximum of six hours per month meeting and greeting her guests on nongame nights. In return for your payments- and a free meal on the nights you appear-you will sign autographs and have your picture taken with guests. As of today, the restaurant owner is only willing to commit to a one-year contract. Freddie That sounds good. But how much is all this going to add up to? It sounds like an awful lot of money, so what am I going to do with it all? Spend it? Save and invest it? Steven As we discussed when you signed your contract with my firm, I have a financial advisor that's going to help you answer those questions. You have an appointment to talk with her tomorrow, but I think it is reasonable to assume that you can eam a 5000%, compounded monthly, on your funds during the term of your contract. In the meantime, I'll be talking with Xavier Rodriguez to see how much of what I propose that the Dusties are willing to pay. How about if you spend some time computing how much money you're actually going to make-net of my commission and your taxes-if Xavier accepts our proposal? Don't forget that your bonuses are taxed as ordinary income. Freddie ok, 11l give it a try. I remember some of the time value of money techniques that I leamed in my college finance class. Perhaps we can review my results after you've had your conversation with Mr. Rodriguez and we have a better idea of the contract numbers? Steven Freddie, that sounds like an excellent plan. When we hang up, I'll email you a worksheet that you can use if you'd like. 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 simplify your calculations: Assume that all bonuses are earned in each of the years for which they are available and are paid on the last day of the corresponding year. Their value should be based on the salary in effect at the time the bonuses are 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 flow. For example, annual 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. (Hint: The performance bonus is paid once per year and therefore should be discounted using an annual interest rate.) Round all dollar amounts to the nearest whole dollar and carry out all interest rate factors to four decimal places. Freddie Fencerattler's Contract Evaluation Worksheet