I need help!!!!!!!!!! Colin Closer's Contract Evaluation Worksheet
- Assume that all bonuses are earned in each of the years for Iwhich they are available and are paid at the end of the corresponding year{s), ' unless specically 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 dollar amounts to the nearest whole dollar and carry out all interest rate factors to four decimal places. Colin Closer's Contract Evaluation Worksheet 1 Assumptions and Calulated Values 3 Colin's Bank Account Rate {compounded monthly) 6.500050 Monthly Bank Rate 0.5412521: Effective Interest Rate Salary and Bonus Information: Year 1 Total value Annual Salary {4% com adjustment) $424,000 $512,623 $2,012,324 Monthly Salary 41,030 42,223 Discount factor {based on Cell B4 above) . 10.8605 10.1233 Discounted Monthly Salary 413,145 $1,229,535 Time-in-League Bonus $20,000 Discount factor {based on Cell B4 above) Discounted Time-in-League Bonus Milestone Bonus $ 1,000,000 Discount factor {based on Cell B5 above) 0.3234 Discounted Milestone Bonus $219,600 Performance Bonus $26,902 $295,390 Discount factor {based on Cell B5 above) 0.7216 Discounted Performance Bonus Monthly Endorsement Contract Payment $250 Discount factor {based on Cell B4 above) 10.8605 Discounted Monthly Endorsement Payment Contract's Total Nominal Value 30 Contract's Total Discounted Value Session , Timeout 4'3""1 v 1. Given your worksheet cachI.IlationsI which of the following statements is accurate? Michael's estimate of the value of Colin's contract accurate on either a nominal or discounted basis? I:I Michael's estimate of the nominal value of Colin's contract is correct. I:I It is appropriate and necessary to discount the performance bonus using the bank account's effective interest rate because of differences in the timing of the compounding of the bank account and that of the payments for the performance bonus. I:I It is appropriate and necessary to discount the endorsement contract using the bank account's effective interest rate because of differences in the timing of the compounding of the bank account and that of the payments on the endorsement contract. 2. The local car dealer creating Colin's endorsement contract can earn 6% {compounded quarterly) on her deposited funds. She would have to deposit |:| each quarter. starting exactly two years before the day Colin signs his contract, to fund her endorsement contract. [Hote: The future value interest factor of 6% compounded quarterly for eight quarterly periods is 8.4331]
