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16. Application of Time Value of Money Skills Gavin Goldenarm 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 (AA)-level baseball team, the Roswell Extraterrestrials; last yeor, he was the first runner-up for the Minor League Player of the Year award. Using his 97 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 17 -3 win-loss record, an eamed run average (ERA) of 2.84, and 108 strikeouts in 123.1 innings pitched, He is also your best friend. Two weeks ago, on his three year anniversary with the team, Gavin received the following email from his agent, Steven Sign'em-Now, indicating that hie is being called up to the Mobile Bayhoppers, the Extraterrestrals's corresponding Major League Baseball (MLB) team, Moreover, Gavin's contract is being revised to reflect his now status. The email describes the general terms and conditions of Gavins revised contract. Gavin is so excitedi According to Steven, the contract is worth $3,292,400 - assuming receipt af all possible bonuses. Aiter rereading the email twice and calling his family, Gavin called you to review the terms of the contrad and venify Steven's calculations, After an extended conversation about what hetl do with his newfound wealth, you and Gavin have agreed that any funds received could be invested to carn 5.50\%, compounded monthly. Contract Evaluation Worksheet Complete the following worksheet by inserting the appropriate values to evaluate the contract and answer the related questions. Notes to clarily possible sources of confusion and simplify your calculations: - Assume that all bonuses are earned in each of the years for which they are available and are paid at the end of the corresponding year(s), unless specifcally stated differently. Their value should be based on the salary in effect at the time the bonuses were earned. - The endorsernent proceeds are paid in accordance with the terms of the deal. Contract Evaleation Worksther Comblete the fellowing woiksheet by insertany the appecptiate values to evahate the contract and answed the related questions Wotes To carify possable socrces of cotifution atid semplify your calculations: Year(s), unless specifically stated differensiy, Their valies should be hased on the salary in ellect at the time the bonwes were tarned. - The endorsensent procreds are paid in accordance with the terms of the iseal. - Remerntier that the tirning of a cashi flow affects the interest rate that is used to discount the cavi flow, For example, annast nite est nites thould be wised to discount annual cash flows, and monthly interest nates are used to discount monthly cash flows. Therefore, It may be necensary to coenpute the approcriate interest rate thet stould be issed in a dotounting calculaboti. - Round all dollar amounts to the nearest whole dollar and carry out all interest rate factors to four decimal places. - When eritering intermediate values as answer choicelv, be ture to round them to the nearest follar, however when using those lame values to calculate another answer, do not round. Gavin Goldenarm's Contract Evaluation Worksheet 1. Given your worksheet calculations, which of the follownd statements is accurate? is Steven's estimate of the value of Gavin's contrict accurate of either it nommal of discoranted basia? Check all that apply. Steven's easmate of the value of Gavin's opntmact is incorrect od a nominal basa, and the erfor is 365,389. Strvenis estimate of the nominal value of Gavin's contract is cocrect. It is approprate and necessary to discount the pettormance bonus iesing the bank account's ellective anrizal interest rate because of 29 Contract's Total Nominal Value 30 Contract's Total Discounted Value 1. Given your worksheet calculations, which of the following statements is accurate? Is Steven's extimate of the valiet of Gavin's contract accurate on ether a nomural or discounted basis check all that apply. Steven's estimate of the value of Gavin's contract is incorrect on a nominal basis, and the error 15565,399 Steven's estimate of the nominal value of Gavin's contract is correct. If is approgiriste and necessury to discount the perfarmanen bonus using the bank account's effective annual interest rate becaise of differences in the tiping of the compounding of the bank account and that of the pryments for the performance benus. waild have to deposit each quanter, starting exactly two years belore the day Gavin signs his contrect, to fund her endorsetnent cortract. [Note: The fiture vilue interest factor of 6.5 conviounded quarterly for eight quarterly periods is 8.4328.1 ] 16. Application of Time Value of Money Skills Gavin Goldenarm 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 (AA)-level baseball team, the Roswell Extraterrestrials; last yeor, he was the first runner-up for the Minor League Player of the Year award. Using his 97 mph fastball, an impeccable curve ball and slider, and a reliable changeup pitch, he achieved a 17 -3 win-loss record, an eamed run average (ERA) of 2.84, and 108 strikeouts in 123.1 innings pitched, He is also your best friend. Two weeks ago, on his three year anniversary with the team, Gavin received the following email from his agent, Steven Sign'em-Now, indicating that hie is being called up to the Mobile Bayhoppers, the Extraterrestrals's corresponding Major League Baseball (MLB) team, Moreover, Gavin's contract is being revised to reflect his now status. The email describes the general terms and conditions of Gavins revised contract. Gavin is so excitedi According to Steven, the contract is worth $3,292,400 - assuming receipt af all possible bonuses. Aiter rereading the email twice and calling his family, Gavin called you to review the terms of the contrad and venify Steven's calculations, After an extended conversation about what hetl do with his newfound wealth, you and Gavin have agreed that any funds received could be invested to carn 5.50\%, compounded monthly. Contract Evaluation Worksheet Complete the following worksheet by inserting the appropriate values to evaluate the contract and answer the related questions. Notes to clarily possible sources of confusion and simplify your calculations: - Assume that all bonuses are earned in each of the years for which they are available and are paid at the end of the corresponding year(s), unless specifcally stated differently. Their value should be based on the salary in effect at the time the bonuses were earned. - The endorsernent proceeds are paid in accordance with the terms of the deal. Contract Evaleation Worksther Comblete the fellowing woiksheet by insertany the appecptiate values to evahate the contract and answed the related questions Wotes To carify possable socrces of cotifution atid semplify your calculations: Year(s), unless specifically stated differensiy, Their valies should be hased on the salary in ellect at the time the bonwes were tarned. - The endorsensent procreds are paid in accordance with the terms of the iseal. - Remerntier that the tirning of a cashi flow affects the interest rate that is used to discount the cavi flow, For example, annast nite est nites thould be wised to discount annual cash flows, and monthly interest nates are used to discount monthly cash flows. Therefore, It may be necensary to coenpute the approcriate interest rate thet stould be issed in a dotounting calculaboti. - Round all dollar amounts to the nearest whole dollar and carry out all interest rate factors to four decimal places. - When eritering intermediate values as answer choicelv, be ture to round them to the nearest follar, however when using those lame values to calculate another answer, do not round. Gavin Goldenarm's Contract Evaluation Worksheet 1. Given your worksheet calculations, which of the follownd statements is accurate? is Steven's estimate of the value of Gavin's contrict accurate of either it nommal of discoranted basia? Check all that apply. Steven's easmate of the value of Gavin's opntmact is incorrect od a nominal basa, and the erfor is 365,389. Strvenis estimate of the nominal value of Gavin's contract is cocrect. It is approprate and necessary to discount the pettormance bonus iesing the bank account's ellective anrizal interest rate because of 29 Contract's Total Nominal Value 30 Contract's Total Discounted Value 1. Given your worksheet calculations, which of the following statements is accurate? Is Steven's extimate of the valiet of Gavin's contract accurate on ether a nomural or discounted basis check all that apply. Steven's estimate of the value of Gavin's contract is incorrect on a nominal basis, and the error 15565,399 Steven's estimate of the nominal value of Gavin's contract is correct. If is approgiriste and necessury to discount the perfarmanen bonus using the bank account's effective annual interest rate becaise of differences in the tiping of the compounding of the bank account and that of the pryments for the performance benus. waild have to deposit each quanter, starting exactly two years belore the day Gavin signs his contrect, to fund her endorsetnent cortract. [Note: The fiture vilue interest factor of 6.5 conviounded quarterly for eight quarterly periods is 8.4328.1 ]