Nick Nohitter has been playing basebail since he was five years old and has always dreamed of playing in the big leagues. Last season, he was a starting pitcher for a double-A (AA)-level baseball team, the Roswell Extraterrestrials; last year, he was the first runner-up for the Minor League Player of the Year award. Using his 93 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 15-2 win-loss record, an earned run average (ERA) of 2.76, and 123 strikeouts in 99.1 innings pitched. He is also your best friend. Two weeks ago, on his three-year anniversary with the team, Nick received the following email from his agent, Marty Fineprint, indicating that he is being called up to the Mobile Bayhoppers, the Extraterrestrials's corresponding Major League Baseball (MLB) team, Moreover, Nick's contract is being revised to reflect his new status. The email describes the general terms and conditions of Nick's revised contract. From: Marty Fineprint To: Nick Nohitter Subject: New Team, New Contract Proposal Nick, Conaratulationst You've been called up to the Mobile Bavhobders. Below are the Nick is so excited! According to Marty, the contract is worth $2,836,400-assuming recelpt of all possible bonuses. After rereading the email twice and calling his familly, Nick called you to review the terms of the contract and verify Marty's calculations. After an extended conversation about what he'll do with his newfound wealth, you and Nick have agreed that any funds recelved could be invested to earn 5.50%, compounded monthly. Nick Nohitter has been playing baseball since he was five years old and has always dreamed of playing in the big leagues. Last season, he was a starting pitcher for a double-A (AA)-level baseball team, the Roswell Extraterrestrials; last year, he was the first runner-up for the Minor League Player of the Year award. Using his 93 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 152 win-loss record, an eamed run average (ERA) of 2.76, and 123 strikeouts in 99.1 innings pitched. He is also your best friend. Two weeks ago, on his three-year anniversary with the team, Nick recelved the following email from his agent, Marty Fineprint, indicating that he is being called up to the Mobile Bayhoppers, the Extraterrestrials's corresponding Major League Baseball (MLB) team. Moreover, Nick's contract is being revised to reflect his new status. The email describes the general terms and conditions of Nick's revised contract. Nick is so excitedl According to Marty, the contract is worth. $2,836,400 - assuming receipt of all possible bonuses. After rereading the email twice and calling his family, Nick called you to review the terms of the contract and verify Marty's calculations. After an extended conversation about what he'll do with his newfound wealth, you and Nick have agreed that any funds received could be invested to eam 5.50%, compounded monthly. Nick Nohitter has been playing baseball since he was five years old and has always dreamed of playing in the big leagues. Last season, he was a starting pitcher for a double-A (AA)-level baseball team, the Roswell Extraterrestrials; last year, he was the first runner-up for the Minor League Player of the Year award, Using his 93 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 152 win-loss record, an earned run average (ERA) of 2.76, and 12.3 strikeouts in 99.1 innings pitched. He is also your best friend. Two weeks ago, on his three-year anniversary with the team, Nick received the following email from his agent, Marty Fineprint, indicating that he is being called up to the Mobile Bayhoppers, the Extraterrestrials's corresponding Major League Baseball (MLB) team. Moreover, Nick's contract is being revised to reflect his new status. The email describes the general terms and conditions of Nick's revised contract. Nick is so excitedt According to Marty, the contract is worth $2,836,400-assuming recelpt of all possible bonuses. After rereading the email twice and calling his family, Nick called you to review the terms of the contract and verify Marty's calculations. After an extended conversation about what he? do with his newfound wealth, you and Nick have agreed that any funds received could be invested to eam 5.50%, compounded monthly. Nick Nohitter has been playing baseball since he was five years old and has always dreamed of playing in the big leagues. Last season, be was a starting pitcher for a double-A (AA)-level baseball team, the Roswell Extraterrestrials; last year, he was the first runner-up for the Minor League Player of the Year award. Using his 93 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 152 win-loss record, an earned run average (ERA) of 2.76, and 123 strikeouts in 99.1 innings pitched. He is also your best friend. Two weeks ago, on his three-year anniversary with the team, Nick received the following emal from his agent, Marty Fineprint, indicating that he is being called up to the Moblle Bayhoppers, the Extraterrestrials's corresponding Major League Baseball (MLB) team, Morcover, Nick's contract is being revised to reflect his new status. The email describes the general terms and conditions of Nick's revised contract. league. The Player is also offered the fallowing milestone bonus: a $75,000 bonus if he ties Nolan Ryan's 1973 single-season strikeout record (383 strikeouts). - The Player is eligible for each potential bonus each yeor that the contract is in effect and, If expressed as a percentage, will be based on the value of the Player's base annual salary for the corresponding year, 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 millestone, the actual contract contains several progressive milestones. Fxcopdinn nne milestnne creates the onnominitv to rxcend snather Nick is so excited According to Marty, the contract is worth $2,836,400-assuming receipt of all possible bonuses. After rereading the email twice and calling his family, Nick called you to review the terms of the contract and verify Marty's caiculations. After an extended conversation about what hell do with his newfound wealth, you and Nick have agreed that any funds recelved could be invested to earn 5.50%, compounded monehly. Nick Nohitter has been playing baseball since he was five years old and has always dreamed of playing in the big leagues. Last season, he was a starting pitcher for a double-A (AA)-level basebail team, the Roswell Extraterrestrials; last year, he was the first runner-up for the Minor League Player of the Year award. Using his 93 mph fastball, an impeccable curve ball and slider, and a rellable changeup pitch, he achieved a 152 win-loss record, an earned run average (ERA) of 2.76, and 123 strikeouts in 99.1 innings pitched. He is also your best friend. Two weeks ago, on his three-year anniversary with the team, Nick received the following email from his agent, Marty Fineprint, indicating that he is being called up to the Mobile Bayhoppers, the Extraterrestrials's corresponding Major League Baseball (MLB) team. Moreover, Nick's contract is being revised to reflect his new status. The email describes the general terms and conditions of Nick's revised contract. Nick is so excited According to Marty, the contract is worth $2,836,400-assuming receipt of all possible bonuses. After rereading the email twice and calling his family, Nick called you to review the terms of the contract and verify Marty's calculations. After an extended conversation about what bell do with his newfound wealth, you and Nick have agreed that any funds received could be invested to earn 5.50%, compounded monthily. Nick Nohitter has been playing baseball since he was five years old and has always dreamed of playing in the big leagues. Last season, he was a starting pitcher for a double-A (AA)-level baseball team, the Roswell Extraterrestrials; last year, he was the first runner-up for the Minor League Player of the Year award. Using his 93 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 152 win-loss record, an earned run average (ERA) of 2.76, and 123 strikeouts in 99.1 innings pitched. He is also your best friend. Two weeks ago, on his three-year anniversary with the team, Nick received the following emall from his agent, Marty Fineprint, indicating that he is being called up to the Mobile Bayhoppers, the Extraterrestrials's corresponding Major League Baseball (MLB) team. Moreover, Nick's contract is being revised to reflect his new status. The email describes the general terms and conditions of Nick's revised contract. Nick is so excited According to Marty, the contract is worth $2,836,400-assuming receipt of all possible bonuses, After rereading the email twice and calling his family, Nick called you to review the terms of the contract and verify Marty's calculations. After an extended conversation about what he'll do with his newfound wealth, you and Nick have agreed that any funds received could be invested to earn 5.50%, compounded monthly. Contract Evaluation Worksheet Complete the following worksheet by inserting the appropriate values to evaluate the contract and answer the related 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 differently. Their value should be 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 flows, 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 dollar 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, however when using those same values to calculate another answer, do not round. Nick Nohitter's Contract Evaluation Worksheet 05: Assignment - Time Value of Money \begin{tabular}{ll|} 13 & Time-in-League Bonus \\ 14 & Discount factor (based on \\ Ceil B4 above) & 0.9729 \\ 15 & Discounted Time-in-League \end{tabular} Bonus 16 Ch 05: Assignment - Time Value of Money Bonus 20 24 25 Monthly Endorsement 5 Contract Payment 26 Discount factor (based Cell B4 above) 27 Discounted Monthly Endorsement Payment 28 29 Contract's Total Nominal Value 30 Contract's Total Discounted Value h 05 : Assignment - Time Value of Money 27 Discounted Monthly Endorsement Payment 28 29 Contract's Total Nominal Value 30 Contract's Total Discounted Value 1. Given your worksheet calculations, which of the following statements is accurate? is Marty's estimate of the value of Nick's contract accurate on either a nominal or discounted basis? Check all that apply. 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. Marty's estimate of the value of Nick's contract is incorrect on a nominal basis, and the error is $39,239. 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. Related Question: The local car dealer creating Nick's endorsement opportunity can eam 6% (compounded quarterly) on his deposited funds. She would have to deposit each quarter, starting exactly two years before the day Nick signs his contract, to fund her endorsement contract. [Note: The future value interest factor of 6% compounded quarterly for eight quarterly periods is 8.4328