Gavin is so excled! According to Michael, the contract is worth $3,254,400-assuming recevpt of all possible bonuses. After rereading the email twace and calling his famlly, Gavin called you to review the terms of the contract and venty Michael's calculations. After an extended coowersation about what hell do with his newfound wealth, you and Gavin have agreed that ary funds received could be invested to earn 7.505, compounded roonthly. Contract Evaluation Worksheer 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 calculetions: - Assume that all bonuses are earned in each of the years for which they are avalable and are paid at the end of the corresponcting year(s), uniess specifically stated differenthy. Their value should be based en the salory in elfect ar the thme the bonuses were camed. - The endorsement procends are paid in accoedance with the terms of the deal. - Peemember that the timing of a cash flow aflects the interest rate that is used to drcount the cash fow. For example, annuat interest rates should be used to chscount annual cash flows, and monthly intetest rates are used to discount nonefly cash flows. Therefore. it-mary be necessary to compute the appropriate interest fate that should be used in a discounting calculation. - Round all dollar amounts to the nearest whole dollor and carry out all interest rate factors to four decimal places. - When entering intermedunte values as aniwer choices, be sure to round them to the nearest dollar, however when ising those same values to calculate another answer, do not round. Gavin Coldenarm's Contract Evaluation Worksheet A B c b E F Calculated Values 2. Bank Rate Informations 3 Gavin's Bank Account Rate (compounded monthly) 4 Manthly Bank Rate 5 Eifective Annual Interest Rate 16 7 Salary and Bonus Year 1 Year? Year 3 Year 4 Total value Information 6. Annual Salary (4\% COLA) 9 Menthly Salary 10 Drscount factor (based on 11.526392047 10.69003134 9.925469771 9.210457961230 Cell B4 abowe) 11 Discounted Annual 5alary 12 13 Time in-League Bonus 14. Discount factor (baked on 0.9633 Cell BA above) 15 Discrunted Thme-in-League Borus 16 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 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 Wizards, I've also been able to secure the following endorsement opportunity: A local car dealer has offered you a contract that will pay $2,750 per month for two years. This contract is contingent on your accepting the contract with the Wizards 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 youl Take care, Michael Michael Make-d'Team Sports Agent, R\&R Talent Management Inc. I Wichita - Gavin Goldenarm hereafter referred to as the "Player," is offered a four-year contract with an annual salary of $564,000 per year, to be paid at the end of each month in the contract term. - 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 $15,000 time-in-league bonus after six 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 Player is offered the following award-based performance incentive: a 15% bonus if he is selected for consideration of a major award-such as the Cy Young Award (for outstanding pitching). The Player is also offered the following milestone bonus: a $150,000 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 only one milestone, the actual contract contains several progressive milestones. - Exceeding one milestone creates the opportunity to exceed another. 18 Discount factor (based on Cell BS above) 19 Discounted Milestone Bonus 20 21 Performance Bonus 22. Discount factor (based on Cell BS above) 23 Discounted Performance Bonus 24 25 Monthly Endorsement Contract Payment 26 Descount factor (based on Cell B4 above) 27 Discounted Monthly Endorsement Payment 28 29 Contract's Total Nominal Value 30 Contract's Total Discounted Value. 0.9280 11.5264 5 5 0.7991 10.6960 s 5 5 5