Monty Hardy recently rejected a $ 24,000,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $ 9,000,000 and annual payments of $ 3,000,000. To sweeten the deal, the president of player personnel for the Seals has now offered a $ 26,200,000, five-year contract. This contract calls for annual increases and a balloon payment at the end of five years.
| Year 1 | | $ 3,000,000 |
| Year 2 | | 3,080,000 |
| Year 3 | | 3,160,000 |
| Year 4 | | 3,240,000 |
| Year 5 | | 3,520,000 |
| Year 5 balloon payment | | 10,200,000 |
| Total | | $ 26,200,000 |
Suppose you are Hardys agent and you wish to evaluate the two contracts using a required rate of return of 15 percent. In present value terms, how much better is the second contract? (Round present value factor calculations to 4 decimal places, e.g. 1.2151 and final answers to 0 decimal places, e.g. 125. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
| Present value of old contract | | enter a dollar amount |
| Present value of new contract | | enter a dollar amount |
| In present value terms, the second contract is select an option better not better than the old one. |
APPENDIX B 8% 11% 12% 30% 14% 0.8772 20% 0.8333 0.8929 16% 0.8621 0.7432 0.6407 0.7972 0.7695 0.6944 0.6750 0.5787 0.7118 0.6355 0.7692 0.5917 0.4552 0.3501 0.2693 0.5921 0.5194 0.5674 0.5066 0.5523 0.4761 0.4104 0.3538 0.3050 0.4823 0.4019 0.3349 0.4556 0.2072 0.4523 0.2791 0.2326 0.4039 13% 0.8850 0.7831 0.6931 0.6133 0.5428 0.4803 0.4251 0.3762 0.3329 0.2946 0.2607 0.2307 0.2042 0.1807 0.1599 0.1415 0.1252 TABLE B9.1 Present value of $1 due in n periods 6% 7% 9% 10% 1 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 2 0.8900 0.8734 0.8573 0.8417 0.8264 0.8116 3 0.8396 0.8163 0.7938 0.7722 0.7513 0.7312 4 0.7921 0.7629 0.7350 0.7084 0.6830 0.6587 5 0.7473 0.7130 0.6806 0.6499 0.6209 0.5935 6 0.7050 0.6663 0.6302 0.5963 0.5645 0.5346 7 0.6651 0.6227 0.5835 0.5470 0.5132 0.4817 8 0.6274 0.5820 0.5403 0.5019 0.4665 0.4339 9 0.5919 0.5439 0.5002 0.4604 0.4241 0.3909 10 0.5584 0.5083 0.4632 0.4224 0.3855 0.3522 11 0.5268 0.4751 0.4289 0.3875 0.3505 0.3173 12 0.4970 0.4440 0.3971 0.3555 0.3186 0.2858 13 0.4688 0.4150 0.3677 0.3262 0.2897 0.2575 14 0.4423 0.3878 0.3405 0.2992 0.2633 0.2320 15 0.4173 0.3624 0.3152 0.2745 0.2394 0.2090 16 0.3936 0.3387 0.2919 0.2519 0.2176 0.1883 17 0.3714 0.3166 0.2703 0.2311 0.1978 0.1696 18 0.3503 0.2959 0.2502 0.2120 0.1799 0.1528 19 0.3305 0.2765 0.2317 0.1945 0.1635 0.1377 20 0.3118 0.2584 0.2145 0.1784 0.1486 0.1240 0.3606 0.2630 0.1938 0.3220 0.2875 0.2567 0.1615 15% 0.8696 0.7561 0.6575 0.5718 0.4972 0.4323 0.3759 0.3269 0.2843 0.2472 0.2149 0.1869 0.1625 0.1413 0.1229 0.1069 0.0929 0.0808 0.0703 0.0611 0.1346 0.1122 0.3996 0.3506 0.3075 0.2697 0.2366 0.2076 0.1821 0.1597 0.1401 0.1229 0.1078 0.0946 0.0829 0.0728 0.2292 0.2267 0.1954 0.1685 0.1452 0.1252 0.1079 0.0930 0.0802 0.0691 0.0596 0.0514 0.2046 0.1827 0.1594 0.1226 0.0943 0.0725 0.0558 0.0429 0.0330 0.0254 0.0195 0.0150 0.0116 0.0089 0.0068 0.0053 0.0935 0.0779 0.0649 0.0541 0.0451 0.0376 0.0313 0.0261 0.1631 0.1456 0.1108 0.1300 0.1161 0.0981 0.1037 0.0868 14% 15% 16% 20% 0.8772 0.8621 0.8333 12% 0.8929 1.6901 2.4018 3.0373 3.6048 TABLE B9.2 Present value of an annuity of $1 per period 6% 7% 8% 9% 10% 11% 1 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 2 1.8334 1.8080 1.7833 1.7591 1.7355 1.7125 3 2.6730 2.6243 2.5771 2.5313 2.4869 2.4437 4 3.4651 3.3872 3.3121 3.2397 3.1699 3.1024 5 4.2124 4.1002 3.9927 3.8897 3.7908 3.6959 6 4.9173 4.7665 4.6229 4.4859 4.3553 4.2305 7 5.5824 5.3893 5.2064 5.0330 4.8684 4.7122 8 6.2098 5.9713 5.7466 5.5348 5.3349 5.1461 9 6.8017 6.5152 6.2469 5.9952 5.7590 5.5370 10 7.3601 7.0236 6.7101 6.4177 6.1446 5.8892 11 7.8869 7.4987 7.1390 6.8052 6.4951 6.2065 12 8.3838 7.9427 7.5361 7.1607 6.8137 6.4924 13 8.8527 8.3577 7.9038 7.4869 7.1034 6.7499 14 9.2950 8.7455 8.2442 7.7862 7.3667 6.9819 15 9.7122 9.1079 8.5595 8.0607 7.6061 7.1909 16 10.1059 9.4466 8.8514 8.3126 7.8237 7.3792 17 10.4773 9.7632 9.1216 8.5436 8.0216 7.5488 18 10.8276 10.0591 9.3719 8.7556 8.2014 7.7016 19 11.1581 10.3356 9.6036 8.9501 8.3649 7.8393 20 11.4699 10.5940 9.8181 9.1285 8.5136 7.9633 4.1114 4.5638 4.9676 5.3282 5.6502 5.9377 6.1944 6.4235 6.6282 6.8109 6.9740 7.1196 7.2497 7.3658 7.4694 13% 0.8850 1.6681 2.3612 2.9745 3.5172 3.9975 4.4226 4.7988 5.1317 5.4262 5.6869 5.9176 6.1218 6.3025 6.4624 6.6039 6.7291 6.8399 6.9380 7.0248 1.6467 2.3216 2.9137 3.4331 3.8887 4.2883 4.6389 4.9464 5.2161 5.4527 5.6603 5.8424 6.0021 6.1422 6.2651 6.3729 6.4674 6.5504 6.6231 0.8696 1.6257 2.2832 2.8550 3.3522 3.7845 4.1604 4.4873 4.7716 5.0188 5.2337 5.4206 5.5831 5.7245 5.8474 5.9542 6.0472 6.1280 6.1982 6.2593 1.6052 2.2459 2.7982 3.2743 3.6847 4.0386 4.3436 4.6065 4.8332 5.0286 5.1971 5.3423 5.4675 5.5755 5.6685 5.7487 5.8178 5.8775 5.9288 1.5278 2.1065 2.5887 2.9906 3.3255 3.6046 3.8372 4.0310 4.1925 4.3271 4.4392 4.5327 4.6106 4.6755 4.7296 4.7746 4.8122 4.8435 4.8696 30% 0.7692 1.3609 1.8161 2.1662 2.4356 2.6427 2.8021 2.9247 3.0190 3.0915 3.1473 3.1903 3.2233 3.2487 3.2682 3.2832 3.2948 3.3037 3.3105 3.3158
