in effect and, If expressed as a percentage, will be based on the value of the Player's base annual salary for the corresponding vear. 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 Bayhoppers, Tve atso been able to secure the following endorsement opportunity: A local car dealer has offered you a contract that will pay $750 per month for two years. This contract is contingent on your accepting the contract with the Bayhoppers 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. Ive 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 tomarrow. 1 'm prous of youl Take care, Noah Noah Never-Enowgh Sports Agent, Aar Taient Management Inc. I Mobile League Bonus 16 17 Milestone Bonus I8 Discount factor (based on 0.9513 0.9050 0.6510 5. 5 Cell 85 above) 19 Disceunted Milestone Bonus 20 21 Performance Bonus 22 Discount facter (based on 0.9513 0.9050 0.8610 0.8191 Cell as above) 23 Discounted Pertermance Bonus. 24 25 Monthly Endorsement Contract Payment 26 Discount factor (based on 11.6812 11.1127 Cell b4 above) 27 Discounted Morthily Endersement Povment. 20 29 Contracts Jotal thominal value 30 Contracts Total Discounted value 16. Application of Time Value of Money Skills Saleem Swingman has been playing baseball since he was flve vears old and has always dreamed of playing in the big leagues. Last season, he was a starting pitcher for a double-A (AA)-level boseball team, the Ketchum Baldies; last year, he was the first runner-up for the Miner League Player of the Year award. Using his 97 mph fastbail, 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 vour best friend, Two weeks ag0, on his three-year anniversary with the team, Saleem received the following emall from his agent, Noah Never-Enough, indicating that he is being called up to the Mobile Bayhoppers, the Baldies's corresponding Major League Baseball (MLB) team. Moreover, Saleem's contract is being revised to reflect his new status. The email describes the general terms and conditions of Saleem's revised contract. A B c D E F 1 Assumptions and Calculated Values 2 Bank Rate Information: 3. Saleem's Bank Account Aate (compounded montinly) 4. Manthly Bank Rate 5. Eflective Mnual toteres: Rate 6 7 Satary and Bonus Information: Year 1 Year 2 Year 3 Year 4 Total value i Mnnual Salary (Aw couA) 9 Monthily Salory 10. Discount factor (tased on Cell bs above) 11 Discounced Annual Salary 12 13 Time-initeague Borus 14 Oiscount factor (based on 0.9754 Cell B4 above) 15 Discounted Time in. League sonus ro: Saleem Swingman 5ubject? New Team, New Contract Proposal Saleem, Congratulations! You've been calied up to the Mobile Bayhoppers. Below are the offered terms and condibions 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: - Saleem Swingman hereafter referred to as the "Player," is offered a four-voar contract with an annual salary of $504,000 per vear, 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 saiary ot the beginning of every other year, This means that the Dlayer'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 anter six months of participatien with an Mus team. This bonus will be baid immediately on completion of the six-month period. - The Plaver is offered a performance-based bonus, as well as a milestone bonus. Both are intended to encourage outstanding performance. - The Plaver is offered the following award-based performance incentive: a 15% bonus payable at the end of the operating vear if he is selected to play in the All-Star game. The Plaver is also offered the following milestone bonus: a $250,000 banus if he ties Nolan Ryan's 1973 single-seasan strikeout record ( 383 strikeouts). - The Poyer is eligible for each potential bonus each year that the contract is in effect and, if expressed as a percentage. will be based ch the value of the 1. Given your worksheet calculations, which of the following statements is accurate? Is Noah's estimate of the value of Saleem's contract accurate on either a nominal or discounted basis? Check all that apply. Noah's estimate of the nominal value of Saleem's contract is correct. It is 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. It is appropriate 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. Related questiont The local car dealor creoting Saloem'n 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 Saleem signs his controct, to fund her endorsement contract. [Note: The future value interest factor of 60 compounded quarterly for eight quartenly periods is 8.432.8.] Saleem is so excitedl According to Noah, the contract is worth $3,358,400-assuming receipt of all possible bonuses. After rereading the email twice and calling his family, Saleem called you to review the terms of the contract and verify Noah's caiculations. After an extended conversation about what hell do with his newfound wealth, you and Saleem have agreed that any funds received could be invested to earn 5.00%, compounded monthly. Contract Evaluation Worksheet Complote the following worksheet by inserting the appropriate values to evaluate the contract and answer the reiated questions. Note: To clarify possible sources of confusion and simplify your calculations: - Assume that all bonuses are earned in each of the years for which they are avallable and are paid at the end of the corresponding year (s). unless specifically stated differentiy. Their value should bo 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 nows, 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 doliar 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 dollar, bowever when using those same values to calculate another answer, do not round