Part B

Answer the following application questions. Be sure to show your working and explain your answers using full sentences and evidence where necessary.

-A:. Jenny received two endorsement offers Under Armour offers $50,000 to be paid, in a single payment, in 5 years and Nike negotiated a long-term deal that called for yearly payments to Jenny of $8,500 for 3 years. The risk of default with the Under Armour is higher, so a discount rate of 9% is applied as opposed to the 5% rate used for Nike. Which is the better endorsement offer? Explain

-B:. Jill is about to sign with the WNBA, and her team is offering to defer some of her salary. You are her agent: assuming that Jill does not need money desperately, which would be the best decision for Jill (in terms of present value of future money)? (at 8% discount rate). Explain.

Option 1) $100,000 now

Option 2) $148,000 in 5 years

Option 3) $172,000 in 7 years

-C:. An NFL defensive lineman has been offered the following contract offers:

Contract A: $1,000,000 signing bonus, $1,000,000 year one salary, $1,100,000 year two salary, $1,200,000 year three salary.

Contract B: $800,000 signing bonus, $900,000 year one salary, $1,000,000 year two salary, $1,100,000 year three salary, $1,200,000 year four salary.

1. What are the face values of the contracts?
2. What discount rate would you use to calculate the present value of his contracts? Explain how you decided on the discount rate. Refer to the NFL Contracts Application if you have questions about this step
3. What is the present value of his contracts? Show your working
4. What contract should he accept?