Nick Nohlter 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 (AM)-level baseball team, the Yalima Hops; last year, he was the first runner-up for the Minor Leogue Player of the Year award. Using his 93 mph fostbali, an impeccable curve ball and sidec, and a reliable changeup pltch, he achieved a 152 win-loss record, an earned nun average (ERA) of 2.76, and 123 strikeouts in 99.1 innings pitehed. He is also your best friend. Two weeks ago, on his three-year anniversary with the team, Nick recelved the following emall from his agent, Noah Never-Enough, indicating that he is being called up to the Mobile Bayhoppers, the Hops'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. 3 to Fromt Noah Never-Enough Tos Nick Nohitter Subject New Team, New Contract Proposal Nick; Conaratulationsl You've been called uo to the Moblle Bavhoosers. Belaw are the Nick is so excited According to Noah, the contract is worth $2,840,400-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 Noah's calculations. After an extended conversation about what hell do with his newfound wealth, you and Nick have agreed that any funds received could be invested to eam 8.50%, 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 darify possible sources of confusion and simplify your calculations: - Assume that all bonuses are eamed 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 mey be necessary to compute the appropriate interest rate that should be used in a discounting calculation. - Round all doliar amounts to the nearest whole doliar and camy 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 4 Monthly Bank Rate 5 Effective Annual Interest Rate \begin{tabular}{l} % \\ \hline% \end{tabular} 6 12 13 Time-in-league Bonus 14 Discount factor (based on Cell B4 above) 15 Discounted Time-in-league Bonus 16.9585 1. Given your workheet calculations, which of the following statements is accurate? is Noah's estimate of the value of Nick's contract accurate on ether a nominal or discounted bssis? Check all that apply. Noabis ebtimate of the value of Nick's contract is incorrect on a nominal basis, and the error is 343,059. 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 bonis. Noaht estimate of the nominal value of Nick's contract is correct. Related Questioni The local car dealer creating Nick's endorsement opportunity can eam 6% (compounded quarterfy) on his deposted funds. She would have to depotit each quarter, starting exacty two years befoce the day mick wighs his contract, to fund her endorsement contract. (Note: The fievure value interest foctor of 6% compounded quarteffy for eight quarterly periods is 8.4328. ] Nick Nohlter 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 (AM)-level baseball team, the Yalima Hops; last year, he was the first runner-up for the Minor Leogue Player of the Year award. Using his 93 mph fostbali, an impeccable curve ball and sidec, and a reliable changeup pltch, he achieved a 152 win-loss record, an earned nun average (ERA) of 2.76, and 123 strikeouts in 99.1 innings pitehed. He is also your best friend. Two weeks ago, on his three-year anniversary with the team, Nick recelved the following emall from his agent, Noah Never-Enough, indicating that he is being called up to the Mobile Bayhoppers, the Hops'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. 3 to Fromt Noah Never-Enough Tos Nick Nohitter Subject New Team, New Contract Proposal Nick; Conaratulationsl You've been called uo to the Moblle Bavhoosers. Belaw are the Nick is so excited According to Noah, the contract is worth $2,840,400-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 Noah's calculations. After an extended conversation about what hell do with his newfound wealth, you and Nick have agreed that any funds received could be invested to eam 8.50%, 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 darify possible sources of confusion and simplify your calculations: - Assume that all bonuses are eamed 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 mey be necessary to compute the appropriate interest rate that should be used in a discounting calculation. - Round all doliar amounts to the nearest whole doliar and camy 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 4 Monthly Bank Rate 5 Effective Annual Interest Rate \begin{tabular}{l} % \\ \hline% \end{tabular} 6 12 13 Time-in-league Bonus 14 Discount factor (based on Cell B4 above) 15 Discounted Time-in-league Bonus 16.9585 1. Given your workheet calculations, which of the following statements is accurate? is Noah's estimate of the value of Nick's contract accurate on ether a nominal or discounted bssis? Check all that apply. Noabis ebtimate of the value of Nick's contract is incorrect on a nominal basis, and the error is 343,059. 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 bonis. Noaht estimate of the nominal value of Nick's contract is correct. Related Questioni The local car dealer creating Nick's endorsement opportunity can eam 6% (compounded quarterfy) on his deposted funds. She would have to depotit each quarter, starting exacty two years befoce the day mick wighs his contract, to fund her endorsement contract. (Note: The fievure value interest foctor of 6% compounded quarteffy for eight quarterly periods is 8.4328. ]