Question
Carla Hardy recently rejected a $20,000,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $7,500,000
Carla Hardy recently rejected a $20,000,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $7,500,000 and annual payments of $2,500,000. To sweeten the deal, the president of player personnel for the Seals has now offered a $21,900,000, five-year contract. This contract calls for annual increases and a balloon payment at the end of five years.
Year 1 | $2,500,000 | |
Year 2 | 2,580,000 | |
Year 3 | 2,660,000 | |
Year 4 | 2,740,000 | |
Year 5 | 2,920,000 | |
Year 5 balloon payment | 8,500,000 | |
Total | $21,900,000 |
Click here to view factor tables Suppose you are Hardys agent and you wish to evaluate the two contracts using a required rate of return of 15 percent. In present value terms, how much better is the second contract? (Round present value factor calculations to 4 decimal places, e.g. 1.2151 and final answers to 0 decimal places, e.g. 125. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Present value of old contract | enter a dollar amount | |
---|---|---|
Present value of new contract | enter a dollar amount |
In present value terms, the second contract is select an option better or not better than the old one. |
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