Question
CarlaHardy recently rejected a $23,600,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $8,850,000and annual
CarlaHardy recently rejected a $23,600,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $8,850,000and annual payments of $2,950,000. To sweeten the deal, the president of player personnel for the Seals has now offered a $25,770,000, five-year contract. This contract calls for annual increases and a balloon payment at the end of five years.
Year 1 $2,950,000
Year 2 $3,030,000
Year 3 $3,110,000
Year 4 $ 3,190,000
Year 5 $ 3,460,000
Year 5 balloon payment $10,030,000
Total $25,770,000
Click here to view factor tables(table below)
Suppose you are Hardy's agent and you wish to evaluate the two contracts using a required rate of return of15percent. 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 isselect an optionbetter/not better than the old one.
TABLE B9.1 Present value of $1 due in n periods
6% 7% 8% 9% 10% 11% 12% 13% 14% 15%
10.94340.93460.92590.91740.9091 0.90090.89290.8850 0.8772 0.8696
20.89000.87340.85730.84170.8264 0.8116 0.7972 0.7831 0.7695 0.7561
30.83960.81630.79380.77220.7513 0.73120.7118 0.6931 0.6750 0.6575
40.79210.7629 0.73500.70840.68300.6587 0.63550.6133 0.5921 0.5718
50.74730.7130 0.68060.64990.62090.59350.56740.5428 0.5194 0.4972
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