Text in the box,

From: Steven Signem-Now

To: Colin Closer

Subject: New Team, New Contract Proposal

Colin,

Congratulations! Youve been called up to the Boston Back Bay Boys. Below are the offered terms and conditions of your new contract. After you review them and think about the offer, call me and well discuss your options. Congrats again!

Salary and Incentives:

The Player is offered the following award-based performance incentive: a 15% bonus if he is designated as the Most Valuable Player (MVP) in the league. The Player is also offered the following milestone bonus: a $100,000 bonus if he ties Nolan Ryans 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 Players 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.

The Player is offered a performance-based bonus, as well as a milestone bonus. Both are intended to encourage outstanding performance.

In addition, the Player will receive a one-time $10,000 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.

Under the leagues 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 Players annual salary will increase at the beginning of year 2 and year 4, as applicable.

Colin Closer hereafter referred to as the Player, is offered a four-year contract with an annual salary of $474,000 per year, to be paid at the end of each month in the contract term.

In addition to the proposal offered by the Back Bay Boys, Ive also been able to secure the following endorsement opportunity:

A local car dealer has offered you a contract that will pay $800 per month for two years. This contract is contingent on your accepting the contract with the Back Bay Boys and will take effect immediately upon signing your MLB contract. In return for these payments, you will participate in the dealers promotional events, such as signing autographs and allowing photographs as requested.

Ive also attached a worksheet that you can use to analyze the deal. Im in negotiations for the rest of the day, so lets discuss your thoughts on the contract proposal tomorrow. Im proud of you!

Take care, Steven

Finance in Action - Time Value of Money