Question
Sam Bradford, a top five draft pick of the St. Louis Rams, and his agent are evaluating three contract options. Each option offers a signing
Sam Bradford, a top five draft pick of the St. Louis Rams, and his agent are evaluating three contract options. Each option offers a signing bonus and a series of payments over the life of thecontract. Bradford uses a 9.35 percent rate of return to evaluate the contracts. Given the cash flows for each option below, find the present value of each alternative.
Year Cash Flow Type Option A Option B Option C 0 Signing Bonus $3,100,000 $4,000,000 $4,250,000 1 Annual Salary $650,000 $825,000 $550,000 2 Annual Salary $715,000 $850,000 $625,000 3 Annual Salary $822,250 $925,000 $800,000 4 Annual Salary $975,000 $1,250,000 $900,000 5 Annual Salary $1,100,000 $1,000,000 6 Annual Salary $1,250,000
(If you solve this problem with algebra round intermediate calculations to 6 decimal places, in all cases round your input answers to the nearest dollar.)
a. Find the present value of each alternatives:
Present value of Option A -? $ Present value of Option B-? $ Present value of Option C-? $
b. Which option should he choose ?
He should choose -? Option A Option B Option C
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