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Michael Jordan is arguably the best basketball player of all times (and if you are from Chicago, there is not even an argument about this).
- Michael Jordan is arguably the best basketball player of all times (and if you are from Chicago, there is not even an argument about this). When Michael Jordan and his agent were negotiating his last four-year $100 million contract with the Chicago Bulls, they were given three options. Using a 5% hurdle rate, what is the present value of each of these three options? Assume that the date the negotiations/calculations are being done is December 31, 2000. Which of these three options made the most sense for Michael Jordan to choose? (25 points total)
- No signing bonus and annual salary of $25 million for each of the four years (payable on last day of year). (6 points)
Year 2001 2002 2003 2004
$25 million $25 million $25 million $25 million
- Signing bonus of $15 million payable when the contract is signed. Annual salary as follows (payable on last day of year): (7 points)
Year 2001 2002 2003 2004
$18 million $20 million $22 million $25 million
- Annual salary as follows (payable on last day of year); note, however, that 50% of the annual salary is deferred until the last day of year five when a lump sum is then paid. All salary deferrals will be compensated with 3% p.a. interest. (12 points)
Year 2001 2002 2003 2004
$20 million $20 million $25 million $35 million
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