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Tirade Owens, a professional athlete, currently has a contract that will pay him a large amount in the first year of his contract and smaller
| Tirade Owens, a professional athlete, currently has a contract that will pay him a large amount in the first year of his contract and smaller amounts thereafter. He and his agent, Row Rosenstinck have asked the team to restructure the contract. The team, though reluctant, obliged. Tirade and his agent came up with a counter offer. | ||||||||
| What are the present values of each of the contracts using a 14 percent discount rate? | ||||||||
| Year | Current Contract | Team's Offer | Counter Offer | |||||
| 1 | $8,125,000.00 | $4,000,000.00 | $5,250,000.00 | |||||
| 2 | $3,650,000.00 | $3,825,000.00 | $7,550,000.00 | |||||
| 3 | $2,715,000.00 | $3,850,000.00 | $3,625,000.00 | |||||
| 4 | $1,822,250.00 | $3,925,000.00 | $2,800,000.00 | |||||
| Hint: Find the present value of the contracts first using formulas and then by using the NPV function: NPV(rate,value1,value2, ...). Make sure that all cells are properly formatted. | ||||||||
| Solution using formulas | Solution using NPV function | |||||||
| Discount Rate: | Discount Rate: | |||||||
| PV of Current Contract: | PV of Current Contract: | |||||||
| PV of Team's Offer: | PV of Team's Offer: | |||||||
| PV of Counter Offer: | PV of Counter Offer: | |||||||
| Which of the three contracts has the highest present value? | ||||||||
| Best Value: | ||||||||
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Shape Up Your Finances The Personal Finances Handbook
Authors: Ian Birt
1st Edition
0734608268, 978-0734608260
