Question
NovakHardy recently rejected a $18,800,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $7,050,000and annual
NovakHardy recently rejected a $18,800,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $7,050,000and annual payments of $2,350,000. To sweeten the deal, the president of player personnel for the Seals has now offered a $20,610,000, five-year contract. This contract calls for annual increases and a balloon payment at the end of five years.
Year 1$2,350,000Year 22,430,000Year 32,510,000Year 42,590,000Year 52,740,000Year 5 balloon payment7,990,000Total$20,610,000
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Suppose you are Hardy's agent and you wish to evaluate the two contracts using a required rate of return of15percent. 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 contractenter a dollar amount
Present value of new contractenter a dollar amount
In present value terms, the second contract is
select an option
better
not better
than the old one.
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