Salary and Incentives:

Colin Closer hereafter referred to as the "Player," is offered a four$-$year

contract with an annual salary of $$414,000$ per year, to be paid at the end of

each month in the contract term.

Under the league's collective bargaining agreement, the Player will receive a

$4\%$ cost$-$of$-$living adjustment $($COLA$)$ to his annual salary at the beginning of

every other year. This means that the Player's annual salary will increase at

the beginning of year $2$ and year $4,$ as applicable.

In addition, the Player will receive a one$-$time $$20,000$ time$-$in$-$league bonus

after six months of participation with an MLB team. This bonus will be paid

immediately on completion of the six$-$month period.

The Player is offered a performance$-$based bonus, as well as a milestone

bonus. Both are intended to encourage outstanding performance.

The Player is offered the following award$-$based performance incentive: a

$15\%$ bonus payable at the end of the operating year if he is selected to play

in the All$-$Star game. The Player is also offered the following milestone

bonus: a $$100,000$ bonus if he ties Nolan Ryan's $1973$ single$-$season

strikeout record $(383$ strikeouts$).$

The Player is eligible for each potential bonus each year that the contract is

in effect and, if expressed as a percentage, will be based on the value of the

Player's base annual salary for the corresponding year. If earned, the

performance and milestone bonuses will be distributed in a single payment at

the beginning of the next contract year. Although this proposal describes only

one milestone, the actual contract contains several progressive milestones.

Exceeding one milestone creates the opportunity to exceed another.

In addition to the proposal offered by the Dusties, I've also been able to secure the

following endorsement opportunity:

A local car dealer has offered you a contract that will pay $$3,000$ per month for

two years. This contract is contingent on your accepting the contract with the

Dusties and will take effect immediately upon signing your MLB contract. In

return for these payments, you will participate in the dealer's promotional

events, such as signing autographs and allowing photographs as requested.

I've also attached a worksheet that you can use to analyze the deal. I$\text{'}$m in

negotiations for the rest of the day, so let's discuss your thoughts on the contract

proposal tomorrow. I$\text{'}$m proud of you!

Contract Evaluation Worksheet

Complete the following worksheet by inserting the appropriate values to evaluate the contract and answer the related questions.

Note: To clarify 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 specifically stated differently. Their value should be based on the salary in effect at the time the bonuses were

earned.

The endorsement proceeds are paid in accordance with the terms of the deal.

Remember that the timing of a cash flow affects the interest rate that is used to discount the cash flow. For example, annual interest

rates should be used to discount annual cash flows, and monthly interest rates are used to discount monthly cash flows. Therefore,

it may be necessary to compute the appropriate interest rate that should be used in a discounting calculation.

Round all dollar amounts to the nearest whole dollar and carry out all interest rate factors to four decimal places.

When entering intermediate values as answer choices, be sure to round them to the nearest dollar, however when using those same

values to calculate another answer, do not round.

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