Question
Robert, the sophomore 20-year-old star quarterback of the university football team, is approached about skipping his last two years of college and entering the professional
Robert, the sophomore 20-year-old star quarterback of the university football team, is approached about skipping his last two years of college and entering the professional football draft. Robert expects that his football career will be over by the time he is 32 years old. Talent scouts estimate that Robert could receive a signing bonus of $15 million today, along with a four-year contract for $2 million per year (payable at the end of each year). They further estimate that he could negotiate a contract for $4 million per year for the remaining eight years of his career. The scouts believe, however, that Robert will be a much higher draft pick if he improves by playing two more years of college football. If he stays at the university, he is expected to receive a $25 million signing bonus in two years, along with a five-year contract for $3 million per year. After that, the scouts expect Robert to obtain a five-year contract for $5 million per year to take him into retirement. Assume that Robert can earn a 8% return over this time.
1. What is the present value today (when Robert is 20) of the QBs future expected NFL earnings if he enters the NFL now?
2. What is the present value today (when Robert is 20) of the QBs future expected NFL earnings if he finishes his last 2 years of college enters the NFL 2 years from now?
3. Should Robert stay in college or go to the NFL now?
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