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CarlaHardy recently rejected a $25,600,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $9,600,000and annual

CarlaHardy recently rejected a $25,600,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $9,600,000and annual payments of $3,200,000. To sweeten the deal, the president of player personnel for the Seals has now offered a $27,920,000, five-year contract. This contract calls for annual increases and a balloon payment at the end of five years.

Year 1

$3,200,000

Year 2

3,280,000

Year 3

3,360,000

Year 4

3,440,000

Year 5

3,760,000

Year 5 balloon payment10,880,000

Total$27,920,000

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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 is

select an option

better

not better

than the old one.

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