SHOW WORK, Problem 2:

The winners of the Voice, American Idol and Dancing With The Stars each have endorsement offers that they would like you to analyze for them and determine which has the best offer.

The Voice has been offered an investment that will pay her 200,000 per year starting on her 30th birthday and continuing until her 50th birthday (her last payment of $200,000 will occur on her 50th birthday). She then will receive $260,000 every six months, with the first of these coming six months after her last payment of $200,000 and continuing until her 80th birthday (that will be her last payment of $260,000). Finally, she will receive $11,000,000 one year after her last payment of $260,000.

Idol is offered an investment that will pay her $106,000 every six months starting on her 30th birthday and ending on her 55th birthday (last payment of $106,000 will be on her 55th birthday). She then will receive $700,000 every other year for ten years (5 payments) with the first of these coming one year after her last payment of $106,000. Idol would also receive $13,000,000 one year after her last payment of $700,000.

DWTS told them to keep it simple. DWTS will receive $240,000 per year starting on her 30th birthday and ending on her 70th birthday. She will also receive $14,000,000 on her 80th birthday and another $14,000,000 on her 85th birthday.

Assuming each is celebrating their 25th birthday today, they have a 10% (compounded semi-annually) opportunity cost. SHOW ALL WORK and make your decision using the present value concept.