Question
MontyHardy recently rejected a $16,800,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $6,300,000 and
MontyHardy recently rejected a $16,800,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $6,300,000 and annual payments of $2,100,000. To sweeten the deal, the president of player personnel for the Seals has now offered a $18,460,000, five-year contract. This contract calls for annual increases and a balloon payment at the end of five years. Year 1 $2,100,000 Year 2 2,180,000 Year 3 2,260,000 Year 4 2,340,000 Year 5 2,440,000 Year 5 balloon payment 7,140,000 Total $18,460,000 Suppose you are Hardy's 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?
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