Offer $1$

That makes sense, but can you give me

some examples?

Steve

Sure, let's run through some hypotheticals.

If the discount rate used were $7$ percent

instead of $10$ percent, how might that change

your answer.

$($You do not need to do new calculations,

merely indicate what the likely impact would

be$.)$

It would decrease the PV of future cash flows

It would increase the PV of future cash flows

$$942,410$ immediate signing bonus

$$850,000$ at the end of each year for the next $5$ years

Offer $2$

$$221,205$ immediate signing bonus

$$100,000$ at the end of Years $1$ through $4$

$$150,000$ at the end of Years $5$ through $10$

$$1,000,000$ and the end of Years $11$ through $40$

Offer $3$

$$1,008,482$ immediate signing bonus

$$500,000$ at the end of Year $1$

$$1,000,000$ at the end of Year $2$

$$1,500,000$ at the end of Year $3$

$$2,500,000$ at the end of Year $4$

$$192,410$ bonus for any year Luke is selected to play in the Pro Bowl All Star game $(25\%$ probability in each year$)$

Canadian Football League

$$1,142,410$ immediate signing bonus

$$2,000,000$ at the end of Years $1$ through $3$

Only signing bonus is guaranteed $(80\%$ probability of being on team each year$)$