James Hardy recently rejected a five-year, $20,000,000 contract with the Vancouver Seals hockey team. The contract amount consisted of a signing bonus and equal annual payments as follows: Contract amount Signing bonus Annual payments $ 20,000,000 7,500,000 2,500,000 To sweeten the deal, the president of player personnel for the Seals has now offered a contract amount consisting of a signing bonus and payments which increase annually with a balloon payment at the end of five years as follows: Contract amount Year 1 Year 2 Year 3 Year 4 Year 5 Year 5 balloon payment $ 22,000,000 2,500,000 2,600,000 2,700,000 2,800,000 2,900,000 8,500,000 What-if? Consider the following after you have completed the requirements of P9-1. Assume the rate required rate of return drops to 10%. What impact will this have on James Hardy's evaluation of the two contracts? Factor Total Value of original contract: Time Cash Flow 0 1-5 x = Factor Total X Value of new contract: Time Cash Flow 1 2 3 4 5 5 X 0 0 B X = X X = Impact on decision