Question
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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