PV of cash flow stream

A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 6%. He has been offered three possible 4-year contracts. Payments are guaranteed, and they would be made at the end of each year. Terms of each contract are listed below:

1

2

3

4

Contract 1	$3,500,000	$3,500,000	$3,500,000	$3,500,000
Contract 2	$2,000,000	$3,000,000	$4,000,000	$5,500,000
Contract 3	$7,000,000	$1,000,000	$1,000,000	$1,000,000

As his adviser, which contract would you recommend that he accept?

Select the correct answer.

Contract 1 gives the quarterback the highest future value; therefore, he should accept Contract 1.

Contract 3 gives the quarterback the highest future value; therefore, he should accept Contract 3.

Contract 2 gives the quarterback the highest present value; therefore, he should accept Contract 2.

Contract 3 gives the quarterback the highest present value; therefore, he should accept Contract 3.

Contract 1 gives the quarterback the highest present value; therefore, he should accept Contract 1.

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