or his "$252 million" contract (the total of the payments promised was $252 million). He later moved to the Yankees, but assume the following When Alex Rodriguez moved to the Texas Rangers in 2001, he recelved a lot of attention determine the value of his contract when in order 1 signed it: Rodriguez eams $16 million in the first year, $17 million in years 2 through 4, $19 million in years 5 and 6, $23 million in year 7, and $27 million in years 8 through 10. He also recelves his $10 million signing bonus spread equally over the first 5 years ($2 million per year). His deferred payments begin in 2011. The deferred pay- ment amounts total $33 million and are $5 million, then $4 million, then eight amounts of $3 million (ending in 2020). However, the actual payouts will be different All of the deferred payments will earn 3 % per year until they are paid. For example, the $5 million is deferred from 2001 2011, or 10 years, meaning that it will actually be $6.7196 million when paid. 1 2002 (each payment is deferred 10 years) t the $4 million payment deferred Assum 2012 defen The contract is a 10-year contract, but each yeear has a deferred component so that cash flows are paid out over a total of 20 years. The contractual payments, signing bonus, and deferred components are given below. Note that, by contract, the deferred components are not paid in the year they are earned, but instead are paid (plus interest) 10 years later 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 $17 M $27 M $27 M $16 M S17 M $17 M S19 M $23 M S27 M $19 M $2 M $2 M S: S2 M a. Calculate the true promised payments under this contract, including the deferred payments with interest. the nearest integer.) The true promised payments under this contract for years 1 through 5 are: (Round all values Year 1: $million : $million Year 3: $million Year Year 4: $million Year 5: $million. The true promised payments under this contract for years 6 through 10 are: (Round all values to the nearest million.) Year 6: million Year 7: $million Year 8: million Year 9: $million. million. Year 10: S The true promised payments under this contract for years 11 through 20 are: (Round values to four decimal places.) Year 11: Smillion million. Year 12: S select your answer(s) Click ? contract, the deferred components are not paid in the year they are earned, but instead are paid (plus interest) 10 years later. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 $27 M $16 M $17 M S17 M $17 M $19 M $19 M $23 M $27 M $27 M 2011 Deferred 2012 2018 2013 2014 2015 2016 2017 2019 2020 $4 M $3 M $3 M $5 M $3 M $3 M $3 M $3 M $3 M $3 M 7% per year. Assume that an appropriate discount rate for A-Rod to apply to the contract payments a. Calculate the true promised payments under this contract, including the deferred payments with interest b. Draw a timeline of all of the payments. ract the quoted value of $252 million. What explains the difference? d. Compare the present value of the contract b. Draw a timeline of all of the payments The timeline of all the payments is shown below (cash flows millions): (Select the best choice below,) O A. Year 1* 4. 6 8 10 12 13 20 1 Cash Flows S18 $19 S19 $19 $21 S19 $23 S27 $27 $27 $6.72 $5.38 S4.03 $4.03 O B. Year 8 1 2 2 10 11 12 13 20 4 Cash Flows $18 $19 $23 $27 $6.72 $5.38 S4.03 S19 $19 $21 S19 S23 $27 $4.03 O C. Year 1 - 1 2 3 5 7 8 10 12 13 20 Cash Flows $18 $18 $19 $21 $23 $27 $27 $6.72 $5.38 S4,03 $4.03 S19 S19 S27 O D. Year 1 . 5 8 10 13 20 Cash Flows $18 $19 S19 $19 $19 $21 $23 $27 $27 $6.72 $5.38 S4.03 $4.03 S27 c. Calculate the present value of the contract The present value of the contract is $million. (Round to the nearest million.) Click to select your answer(s). c. Calculate the present value of the contract. The present value of the contract is million. (Round the nearest million.) Compare the present value of the contract the quoted value of $252 million. What explains the difference? (Select the best choice below.) O A. The reason for the difference is although the $252 million quoted value does discount the future cash flows, it does not adjust the deferred payments for accrued interest. O B. The reason for the difference is the $252 million quoted value does not discount the future cash flows or adjust deferred payments for accrued interest. O C. The reason for the difference is that the contract was quoted incorrectly. O D. The reason for the difference is although the $252 million quoted value does adjust the deferred payments for accrued interest, it does not discount the future cash flows. Click to select your answer(s). or his "$252 million" contract (the total of the payments promised was $252 million). He later moved to the Yankees, but assume the following When Alex Rodriguez moved to the Texas Rangers in 2001, he recelved a lot of attention determine the value of his contract when in order 1 signed it: Rodriguez eams $16 million in the first year, $17 million in years 2 through 4, $19 million in years 5 and 6, $23 million in year 7, and $27 million in years 8 through 10. He also recelves his $10 million signing bonus spread equally over the first 5 years ($2 million per year). His deferred payments begin in 2011. The deferred pay- ment amounts total $33 million and are $5 million, then $4 million, then eight amounts of $3 million (ending in 2020). However, the actual payouts will be different All of the deferred payments will earn 3 % per year until they are paid. For example, the $5 million is deferred from 2001 2011, or 10 years, meaning that it will actually be $6.7196 million when paid. 1 2002 (each payment is deferred 10 years) t the $4 million payment deferred Assum 2012 defen The contract is a 10-year contract, but each yeear has a deferred component so that cash flows are paid out over a total of 20 years. The contractual payments, signing bonus, and deferred components are given below. Note that, by contract, the deferred components are not paid in the year they are earned, but instead are paid (plus interest) 10 years later 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 $17 M $27 M $27 M $16 M S17 M $17 M S19 M $23 M S27 M $19 M $2 M $2 M S: S2 M a. Calculate the true promised payments under this contract, including the deferred payments with interest. the nearest integer.) The true promised payments under this contract for years 1 through 5 are: (Round all values Year 1: $million : $million Year 3: $million Year Year 4: $million Year 5: $million. The true promised payments under this contract for years 6 through 10 are: (Round all values to the nearest million.) Year 6: million Year 7: $million Year 8: million Year 9: $million. million. Year 10: S The true promised payments under this contract for years 11 through 20 are: (Round values to four decimal places.) Year 11: Smillion million. Year 12: S select your answer(s) Click ? contract, the deferred components are not paid in the year they are earned, but instead are paid (plus interest) 10 years later. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 $27 M $16 M $17 M S17 M $17 M $19 M $19 M $23 M $27 M $27 M 2011 Deferred 2012 2018 2013 2014 2015 2016 2017 2019 2020 $4 M $3 M $3 M $5 M $3 M $3 M $3 M $3 M $3 M $3 M 7% per year. Assume that an appropriate discount rate for A-Rod to apply to the contract payments a. Calculate the true promised payments under this contract, including the deferred payments with interest b. Draw a timeline of all of the payments. ract the quoted value of $252 million. What explains the difference? d. Compare the present value of the contract b. Draw a timeline of all of the payments The timeline of all the payments is shown below (cash flows millions): (Select the best choice below,) O A. Year 1* 4. 6 8 10 12 13 20 1 Cash Flows S18 $19 S19 $19 $21 S19 $23 S27 $27 $27 $6.72 $5.38 S4.03 $4.03 O B. Year 8 1 2 2 10 11 12 13 20 4 Cash Flows $18 $19 $23 $27 $6.72 $5.38 S4.03 S19 $19 $21 S19 S23 $27 $4.03 O C. Year 1 - 1 2 3 5 7 8 10 12 13 20 Cash Flows $18 $18 $19 $21 $23 $27 $27 $6.72 $5.38 S4,03 $4.03 S19 S19 S27 O D. Year 1 . 5 8 10 13 20 Cash Flows $18 $19 S19 $19 $19 $21 $23 $27 $27 $6.72 $5.38 S4.03 $4.03 S27 c. Calculate the present value of the contract The present value of the contract is $million. (Round to the nearest million.) Click to select your answer(s). c. Calculate the present value of the contract. The present value of the contract is million. (Round the nearest million.) Compare the present value of the contract the quoted value of $252 million. What explains the difference? (Select the best choice below.) O A. The reason for the difference is although the $252 million quoted value does discount the future cash flows, it does not adjust the deferred payments for accrued interest. O B. The reason for the difference is the $252 million quoted value does not discount the future cash flows or adjust deferred payments for accrued interest. O C. The reason for the difference is that the contract was quoted incorrectly. O D. The reason for the difference is although the $252 million quoted value does adjust the deferred payments for accrued interest, it does not discount the future cash flows. Click to select your answer(s)