CE 1. Application of Time Value of Money Skills Gavin Goldenarm has been playing baseball since he was five years old and has always dreamed of playing in the big leagues. Last season, he was a starting pitcher for a double-A (AA)-level baseball team, the Ketchum Baldies; last year, he was the first runner-up for the Minor League Player of the Year award. Using his 97 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 17-3 win-loss record, an earned run average (ERA) of 2.84, and 108 strikeouts in 123.1 innings pitched. He is also your best friend. Two weeks ago, on his three-year anniversary with the team, Gavin received the following email from his agent, Noah Never Enough, indicating that he is being called up to the Boston Back Bay Boys, the Baldies's corresponding Major League Baseball (MLB) team. Moreover, Gavin's contract is being revised to reflect his new status. The email describes the general terms and conditions of Gavin's revised contract. Gavin, Congratulations! You've been called up to the Boston Back Bay Boys. Below are the offered terms and conditions of your new contract. After you review them and think about the offer, call me and we'll discuss your options. Congrats again! Salary and Incentives: Gavin Goldenarm hereafter referred to as the "Player is offered a four-year contract with an annual salary of 444,000 per year, to be paid at the end of each month in the contract term. Gavin is so excitedi According to Noah, the contract is worth $2,582,400-assuming receipt of all possible bonuses. After rereading the email twice and calling his family, Gavin called you to review the terms of the contract and verify Noah's calculations. After an extended conversation about what he'll do with his newfound wealth, you and Gavin have agreed that any funds received could be invested to eam 8.00%, compounded monthly Contract Evaluation Worksheet Complete the following worksheet by inserting the appropriate values to evaluate the contract and answer the related questions Note: To darily 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 at the end of the corresponding year(s), unless specifically stated differently. Their value should be based on the salary in effect at the time the bonuses were 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 flow, and monthly interest rates are used to discount monthly cash flows. Therefore, Year award. Using his 97 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 17-3 win-loss record, an eamed run average (ERA) of 2.84, and 108 strikeouts in 123.1 innings pitched. He is also your best friend. Two weeks ago, on his three-year anniversary with the team, Gavin received the following email from his agent, Noah Never Enough, indicating to he is being called up to the Boston Back Bay Boys, the Baldies's corresponding Major League Baseball (MLB) team. Moreover, Gavin's contract is b revised to reflect his new status. The email describes the general terms and conditions of Gavin's revised contract. . Under the league's collective bargaining agreement, the player will receive a 4% cost-of-living adjustment (COLA) to his annual salary at the beginning of every other year. This means that the player's annual salary will increase at the beginning of year 2 and year 4, as applicable. . In addition, the player will receive a one-time $10,000 time-in-league bonus after slx months of participation with an MLB team. This bonus will be paid immediately on completion of the six-month period The Player is offered a performance-based bonus, as well as a milestone bonus. Both are intended to encourage outstanding performance. The winnende foluta, han demanante Gavin is so excitedi According to Noah, the contract is worth $2,582,400-assuming receipt of all possible bonuses. After rereading the email twice and calling his family, Gavin called you to review the terms of the contract and verify Noah's calculations. After an extended conversation about what he'll do with his newfound wealth, you and Gavin have agreed that any funds received could be invested to earn 8.00%, compounded monthly. 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 eamed in each of the years for which they are available and are paid at the end of the corresponding year(s), unless specifically stated differently. Their value should be based on the salary in effect at the time the bonuses were 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 vates 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 Round soll amounts to the nearest whole dollar and carry out all interest rate factors to four dedmal place . When entering intermediate values answer choice be sure to round them to the nearest deltar, however when using the same Walt ard. Using his 97 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 17 run average (ERA) of 2.84, and 108 strikeouts in 123.1 innings pitched. He is also your best friend. eeks ago, on his three-year anniversary with the team, Gavin received the following email from his agent, Noah Never eing called up to the Boston Back Bay Boys, the Baldies's corresponding Major League Baseball (MLB) team. Moreover, d to reflect his new status. The email describes the general terms and conditions of Gavin's revised contract. The Player is offered the following award-based performance incentive: a 15% bonus if he is designated as the Most Valuable Player (MVP) in the league. The Player is also offered the following milestone bonus: a $125,000 bonus if he ties Nolan Ryan's 1973 single-season strikeout record (383 strikeouts). The Player is eligible for each potential bonus each year that the contract is in effect and, if expressed as a percentage, will be based on the value of the Player's base annual salary for the corresponding year. If earned, the performance and milestone bonuses will be distributed in a single payment at the beginning of the next contract year. Although this proposal describes Gavin is so excited! According to Noah, the contract is worth $2,582,400-assuming receipt of all possible bonuses. After rereading and calling his family, Gavin called you to review the terms of the contract and verify Noah's calculations. After an extended convers he'll do with his newfound wealth, you and Gavin have agreed that any funds received could be invested to earn 8.00%, compounder 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 eamed in each of the years for which they are available and are paid at the end of the correspondin vearts), unless specifically stated differently. Their value should be based on the salary in effect at the time the bonuses were 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 inten 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 Round all dlar amounts to the nearest whole dollar and carry out all interest rate factors to four decimal places When entering intermediate values as anne choicet. ure to round them to the nearest detar, however when using those same value to calculate the answe do not round ce in Action - Time Value of Money ear award. Using his 97 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 17-3 win- arned run average (ERA) of 2.84, and 108 strikeouts in 123.1 innings pitched. He is also your best friend. wo weeks ago, on his three-year anniversary with the team, Gavin received the following email from his agent, Noah Never Enoug he is being called up to the Boston Back Bay Boys, the Baldies's corresponding Major League Baseball (MLB) team. Moreover, Gavin revised to reflect his new status. The email describes the general terms and conditions of Gavin's revised contract. the beginning of the next contract year. Although this proposal describes only one milestone, the actual contract contains several progressive milestones. Exceeding one milestone creates the opportunity to exceed another. In addition to the proposal offered by the Back Bay Boys, I've also been able to secure the following endorsement opportunity: A local car dealer has offered you a contract that will pay $800 per month for The continent a sentinth with the Gavin is so excitedt According to Noah, the contract is worth $2,582,400-assuming receipt of all possible bonuses. After rereading the em and calling his family, Gavin called you to review the terms of the contract and verify Noah's calculations. After an extended conversation ab he'll do with his newfound wealth, you and Gavin have agreed that any funds received could be invested to earn 8.00%, compounded month Contract Evaluation Worksheet Complete the following worksheet by inserting the appropriate values to evaluate the contract and answer the related questions. Note: To darity possible sources of confusion and simplify your calculations: Assume that all bonuses are samned in each of the years for which they are available and are paid at the end of the corresponding year(s), unless specifically stated differently. Their value should be based on the salary in effect at the time the bonuses were 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 . Round do mounts to the nearest whole dollar and carry out all interest rate factors to four decimal places When entering intermediate values as answer choices, be sure to round them to the nearest do Valdeste ard. Using his 97 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 17-3 win-loss recom mun average (ERA) of 2.84, and 108 strikeouts in 123.1 innings pitched. He is also your best friend. eks ago, on his three-year anniversary with the team, Gavin received the following email from his agent, Noah Never Enough, indicati eing called up to the Boston Back Bay Boys, the Baldies's corresponding Major League Baseball (MLB) team. Moreover, Gavin's contract to reflect his new status. The email describes the general terms and conditions of Gavin's revised contract. A local car dealer has offered you a contract that will pay $800 per month for two years. This contract is contingent on your accepting the contract with the Back Bay Boys and will take effect immediately upon signing your MLB contract. In return for these payments, you will participate in the dealer's promotional events, such as signing autographs and allowing photographs as requested. I've also attached a worksheet that you can use to analyze the deal. I'm in negotiations for the rest of the day, so let's discuss your thoughts on the contract proposal tomorrow. I'm proud of you! Gavin is so excitedi According to Noah, the contract is worth $2,582,400-assuming receipt of all possible bonuses. After rereading the email twice and calling his family, Gavin called you to review the terms of the contract and verify Noah's calculations. After an extended conversation about what he'll do with his newfound wealth, you and Gavin have agreed that any funds received could be invested to eam 8.00%, compounded monthly. Contract Evaluation Worksheet Complete the following worksheet by inserting the appropriate values to evaluate the contract and answer the related questions. Note: To darity 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 at the end of the corresponding vearts), unless specifically stated differently. Their value should be based on the salary in effect at the time the bonuses were 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 Round dollar amounts to the nearest whole dollar and carry out all interest rate factors to four decimal places When entering intermediate values as answer chaloes, be sure to round them to the nearest dollar, however when using those same values to calculate other amer, do not round Gavin is so excited according to Noah, the contract is worth $2,582,400-assuming receipt of all possible bonuses. After rereading the email twice and calling his family, Gavin called you to review the terms of the contract and verify Noah's calculations. After an extended conversation about what he'll do with his newfound wealth, you and Gavin have agreed that any funds received could be invested to eam 8.00%, compounded monthly. Contract Evaluation Worksheet Complete the following worksheet by inserting the appropriate values to evaluate the contract and answer the related questions. Note: To darify 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 at the end of the corresponding Year(s), unless specifically stated differently. Their value should be based on the salary in effect at the time the bonuses were 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. Round all dolar amounts to the nearest whole dollar and carry out all interest rate factors to four decimal places, When entering intermediate values as answer choices, be sure to round them to the nearest dottar, however when using those same values to calculate another answer, do not round. Gavin Goldenarm's Contract Evaluation Worksheet B D E F 1 Assumptions and Calculated Values z Bank Rate Information: 3 % 4 Gavin's Bank Account Rate (compounded monthly) Monthly Bank Rate Effective Annual Interest Rate 96 5 % 6 Year 1 Year 2 Year 3 Year 4 Total value 5 $ $ 5 S 11.4958 10.6148 9.8013 9.0501 S 0.9609 7 Salary and Bonus Information: 8 Annual Salary (4% COLA) 9 Monthly Salary 10 Discount factor (based on Cell B4 above) 11 Discounted Annual Salary 12 13 Time-in-League Bonus 14 Discount factor (based on Cell 84 above) 15 Discounted Time-in-League Bonus 16 Milestone Bonus 18 Discount factor (based on Cell B5 above) 19 Discounted Milestone Bonus 20 21 Performance bonus 22 Discount factor (based on Call 85 above Discounted Performance 0.9234 0.8526 0,7873 0.7269 0.9234 0.8520 0.7873 0.7260 23 20 21 Performance Bonus 0.9234 0.8526 0.7873 0.7269 22 Discount factor (based on Cell BS above) 23 Discounted Performance Bonus $ S 24 ola 11.1958 10.6148 25 Monthly Endorsement Contract Payment 26 Discount factor (based on Cell 34 above) 27 Discounted Monthly Endorsement Payment 28 29 Contract's Total Nominat Value 30 Contract's Total Discounted Value 1. Given your worksheet calculations, which of the following statemente is accurate is Noah's estimate of the value of Gavin's contract accurate on either a nominal or discounted basis? Check all that apply It is nopropriate and necessary to discount the performance bonus using the bank account's effective annual interest rate because of differences in the timing of the compounding of the bank account and that of the payments for the performance bonus. as appropriate and necessary to discount the endorsement contract using the bank account's effective annual interest rate because of differences in the timing of the compounding of the bank account and that of the payments on the endorsement contract Noahu estimate of the value of Gavin's contract is incorrect on a nominal basis, and the error is $52,513. Related Question: The local car dealer creating Gavin's endorsement opportunity can earn 6% compounded quarterly) on his deposited funds. She would have to deposit each quarter, starting exactly two years before the day Gavin sions his contract to fund her endorsement contract (Note: The future value interest factor of compounded quarterly for eight quarterly periods is 3.4328.) CE 1. Application of Time Value of Money Skills Gavin Goldenarm has been playing baseball since he was five years old and has always dreamed of playing in the big leagues. Last season, he was a starting pitcher for a double-A (AA)-level baseball team, the Ketchum Baldies; last year, he was the first runner-up for the Minor League Player of the Year award. Using his 97 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 17-3 win-loss record, an earned run average (ERA) of 2.84, and 108 strikeouts in 123.1 innings pitched. He is also your best friend. Two weeks ago, on his three-year anniversary with the team, Gavin received the following email from his agent, Noah Never Enough, indicating that he is being called up to the Boston Back Bay Boys, the Baldies's corresponding Major League Baseball (MLB) team. Moreover, Gavin's contract is being revised to reflect his new status. The email describes the general terms and conditions of Gavin's revised contract. Gavin, Congratulations! You've been called up to the Boston Back Bay Boys. Below are the offered terms and conditions of your new contract. After you review them and think about the offer, call me and we'll discuss your options. Congrats again! Salary and Incentives: Gavin Goldenarm hereafter referred to as the "Player is offered a four-year contract with an annual salary of 444,000 per year, to be paid at the end of each month in the contract term. Gavin is so excitedi According to Noah, the contract is worth $2,582,400-assuming receipt of all possible bonuses. After rereading the email twice and calling his family, Gavin called you to review the terms of the contract and verify Noah's calculations. After an extended conversation about what he'll do with his newfound wealth, you and Gavin have agreed that any funds received could be invested to eam 8.00%, compounded monthly Contract Evaluation Worksheet Complete the following worksheet by inserting the appropriate values to evaluate the contract and answer the related questions Note: To darily 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 at the end of the corresponding year(s), unless specifically stated differently. Their value should be based on the salary in effect at the time the bonuses were 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 flow, and monthly interest rates are used to discount monthly cash flows. Therefore, Year award. Using his 97 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 17-3 win-loss record, an eamed run average (ERA) of 2.84, and 108 strikeouts in 123.1 innings pitched. He is also your best friend. Two weeks ago, on his three-year anniversary with the team, Gavin received the following email from his agent, Noah Never Enough, indicating to he is being called up to the Boston Back Bay Boys, the Baldies's corresponding Major League Baseball (MLB) team. Moreover, Gavin's contract is b revised to reflect his new status. The email describes the general terms and conditions of Gavin's revised contract. . Under the league's collective bargaining agreement, the player will receive a 4% cost-of-living adjustment (COLA) to his annual salary at the beginning of every other year. This means that the player's annual salary will increase at the beginning of year 2 and year 4, as applicable. . In addition, the player will receive a one-time $10,000 time-in-league bonus after slx months of participation with an MLB team. This bonus will be paid immediately on completion of the six-month period The Player is offered a performance-based bonus, as well as a milestone bonus. Both are intended to encourage outstanding performance. The winnende foluta, han demanante Gavin is so excitedi According to Noah, the contract is worth $2,582,400-assuming receipt of all possible bonuses. After rereading the email twice and calling his family, Gavin called you to review the terms of the contract and verify Noah's calculations. After an extended conversation about what he'll do with his newfound wealth, you and Gavin have agreed that any funds received could be invested to earn 8.00%, compounded monthly. 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 eamed in each of the years for which they are available and are paid at the end of the corresponding year(s), unless specifically stated differently. Their value should be based on the salary in effect at the time the bonuses were 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 vates 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 Round soll amounts to the nearest whole dollar and carry out all interest rate factors to four dedmal place . When entering intermediate values answer choice be sure to round them to the nearest deltar, however when using the same Walt ard. Using his 97 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 17 run average (ERA) of 2.84, and 108 strikeouts in 123.1 innings pitched. He is also your best friend. eeks ago, on his three-year anniversary with the team, Gavin received the following email from his agent, Noah Never eing called up to the Boston Back Bay Boys, the Baldies's corresponding Major League Baseball (MLB) team. Moreover, d to reflect his new status. The email describes the general terms and conditions of Gavin's revised contract. The Player is offered the following award-based performance incentive: a 15% bonus if he is designated as the Most Valuable Player (MVP) in the league. The Player is also offered the following milestone bonus: a $125,000 bonus if he ties Nolan Ryan's 1973 single-season strikeout record (383 strikeouts). The Player is eligible for each potential bonus each year that the contract is in effect and, if expressed as a percentage, will be based on the value of the Player's base annual salary for the corresponding year. If earned, the performance and milestone bonuses will be distributed in a single payment at the beginning of the next contract year. Although this proposal describes Gavin is so excited! According to Noah, the contract is worth $2,582,400-assuming receipt of all possible bonuses. After rereading and calling his family, Gavin called you to review the terms of the contract and verify Noah's calculations. After an extended convers he'll do with his newfound wealth, you and Gavin have agreed that any funds received could be invested to earn 8.00%, compounder 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 eamed in each of the years for which they are available and are paid at the end of the correspondin vearts), unless specifically stated differently. Their value should be based on the salary in effect at the time the bonuses were 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 inten 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 Round all dlar amounts to the nearest whole dollar and carry out all interest rate factors to four decimal places When entering intermediate values as anne choicet. ure to round them to the nearest detar, however when using those same value to calculate the answe do not round ce in Action - Time Value of Money ear award. Using his 97 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 17-3 win- arned run average (ERA) of 2.84, and 108 strikeouts in 123.1 innings pitched. He is also your best friend. wo weeks ago, on his three-year anniversary with the team, Gavin received the following email from his agent, Noah Never Enoug he is being called up to the Boston Back Bay Boys, the Baldies's corresponding Major League Baseball (MLB) team. Moreover, Gavin revised to reflect his new status. The email describes the general terms and conditions of Gavin's revised contract. the beginning of the next contract year. Although this proposal describes only one milestone, the actual contract contains several progressive milestones. Exceeding one milestone creates the opportunity to exceed another. In addition to the proposal offered by the Back Bay Boys, I've also been able to secure the following endorsement opportunity: A local car dealer has offered you a contract that will pay $800 per month for The continent a sentinth with the Gavin is so excitedt According to Noah, the contract is worth $2,582,400-assuming receipt of all possible bonuses. After rereading the em and calling his family, Gavin called you to review the terms of the contract and verify Noah's calculations. After an extended conversation ab he'll do with his newfound wealth, you and Gavin have agreed that any funds received could be invested to earn 8.00%, compounded month Contract Evaluation Worksheet Complete the following worksheet by inserting the appropriate values to evaluate the contract and answer the related questions. Note: To darity possible sources of confusion and simplify your calculations: Assume that all bonuses are samned in each of the years for which they are available and are paid at the end of the corresponding year(s), unless specifically stated differently. Their value should be based on the salary in effect at the time the bonuses were 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 . Round do mounts to the nearest whole dollar and carry out all interest rate factors to four decimal places When entering intermediate values as answer choices, be sure to round them to the nearest do Valdeste ard. Using his 97 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 17-3 win-loss recom mun average (ERA) of 2.84, and 108 strikeouts in 123.1 innings pitched. He is also your best friend. eks ago, on his three-year anniversary with the team, Gavin received the following email from his agent, Noah Never Enough, indicati eing called up to the Boston Back Bay Boys, the Baldies's corresponding Major League Baseball (MLB) team. Moreover, Gavin's contract to reflect his new status. The email describes the general terms and conditions of Gavin's revised contract. A local car dealer has offered you a contract that will pay $800 per month for two years. This contract is contingent on your accepting the contract with the Back Bay Boys and will take effect immediately upon signing your MLB contract. In return for these payments, you will participate in the dealer's promotional events, such as signing autographs and allowing photographs as requested. I've also attached a worksheet that you can use to analyze the deal. I'm in negotiations for the rest of the day, so let's discuss your thoughts on the contract proposal tomorrow. I'm proud of you! Gavin is so excitedi According to Noah, the contract is worth $2,582,400-assuming receipt of all possible bonuses. After rereading the email twice and calling his family, Gavin called you to review the terms of the contract and verify Noah's calculations. After an extended conversation about what he'll do with his newfound wealth, you and Gavin have agreed that any funds received could be invested to eam 8.00%, compounded monthly. Contract Evaluation Worksheet Complete the following worksheet by inserting the appropriate values to evaluate the contract and answer the related questions. Note: To darity 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 at the end of the corresponding vearts), unless specifically stated differently. Their value should be based on the salary in effect at the time the bonuses were 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 Round dollar amounts to the nearest whole dollar and carry out all interest rate factors to four decimal places When entering intermediate values as answer chaloes, be sure to round them to the nearest dollar, however when using those same values to calculate other amer, do not round Gavin is so excited according to Noah, the contract is worth $2,582,400-assuming receipt of all possible bonuses. After rereading the email twice and calling his family, Gavin called you to review the terms of the contract and verify Noah's calculations. After an extended conversation about what he'll do with his newfound wealth, you and Gavin have agreed that any funds received could be invested to eam 8.00%, compounded monthly. Contract Evaluation Worksheet Complete the following worksheet by inserting the appropriate values to evaluate the contract and answer the related questions. Note: To darify 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 at the end of the corresponding Year(s), unless specifically stated differently. Their value should be based on the salary in effect at the time the bonuses were 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. Round all dolar amounts to the nearest whole dollar and carry out all interest rate factors to four decimal places, When entering intermediate values as answer choices, be sure to round them to the nearest dottar, however when using those same values to calculate another answer, do not round. Gavin Goldenarm's Contract Evaluation Worksheet B D E F 1 Assumptions and Calculated Values z Bank Rate Information: 3 % 4 Gavin's Bank Account Rate (compounded monthly) Monthly Bank Rate Effective Annual Interest Rate 96 5 % 6 Year 1 Year 2 Year 3 Year 4 Total value 5 $ $ 5 S 11.4958 10.6148 9.8013 9.0501 S 0.9609 7 Salary and Bonus Information: 8 Annual Salary (4% COLA) 9 Monthly Salary 10 Discount factor (based on Cell B4 above) 11 Discounted Annual Salary 12 13 Time-in-League Bonus 14 Discount factor (based on Cell 84 above) 15 Discounted Time-in-League Bonus 16 Milestone Bonus 18 Discount factor (based on Cell B5 above) 19 Discounted Milestone Bonus 20 21 Performance bonus 22 Discount factor (based on Call 85 above Discounted Performance 0.9234 0.8526 0,7873 0.7269 0.9234 0.8520 0.7873 0.7260 23 20 21 Performance Bonus 0.9234 0.8526 0.7873 0.7269 22 Discount factor (based on Cell BS above) 23 Discounted Performance Bonus $ S 24 ola 11.1958 10.6148 25 Monthly Endorsement Contract Payment 26 Discount factor (based on Cell 34 above) 27 Discounted Monthly Endorsement Payment 28 29 Contract's Total Nominat Value 30 Contract's Total Discounted Value 1. Given your worksheet calculations, which of the following statemente is accurate is Noah's estimate of the value of Gavin's contract accurate on either a nominal or discounted basis? Check all that apply It is nopropriate and necessary to discount the performance bonus using the bank account's effective annual interest rate because of differences in the timing of the compounding of the bank account and that of the payments for the performance bonus. as appropriate and necessary to discount the endorsement contract using the bank account's effective annual interest rate because of differences in the timing of the compounding of the bank account and that of the payments on the endorsement contract Noahu estimate of the value of Gavin's contract is incorrect on a nominal basis, and the error is $52,513. Related Question: The local car dealer creating Gavin's endorsement opportunity can earn 6% compounded quarterly) on his deposited funds. She would have to deposit each quarter, starting exactly two years before the day Gavin sions his contract to fund her endorsement contract (Note: The future value interest factor of compounded quarterly for eight quarterly periods is 3.4328.)