use the following story to help with the questions below

Harry is so excited! According to Steven. the contract is worth $2,522,4OCIassuming receipt of all possible bonuses. After rereading the email twice and calling his family, Harry called you to review the terms of the contract and verify Steven's calculations. After an extended conversation about what he'll do with his newfound wealth. you and Harry have agreed that any funds received could be invested to earn 8.50%J compounded monthly. Contra-ct 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)J 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 ow 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. Harry Hurler's Contract Evaluation Worksheet A B C D E F L Assumptions and Calculated Values 2 Bank Rate Inl'ormalion: 3 Harry's Bank Account Rate \\:| 9:1: {compounded monthly} 4 Monthly Bank Rate Z \"all: 5 Effective Annual Interest E .-'b Rate 7 Salary and Bonus Year 1 Year 2 Year 3 Year 4 Total value Information: CO Annual Salary (4% COLA) $ $ $ $ 9 Monthly Salary $ 10 Discount factor (based on 11.465288858 10.53416451 9.678659070 8.892631331225 Cell B4 above) 11 Discounted Annual Salary $ $ $ 12 13 Time-in-League Bonus $ 14 Discount factor (based on 0.9585 Cell B4 above) 15 Discounted Time-in-League $ $ Bonus 16 17 Milestone Bonus $ $ $ 18 Discount factor (based on 0.9188 0.8442 0.7756 0.7126 Cell B5 above) 19 Discounted Milestone Bonus $ $ $ 20 21 Performance Bonus $ $ $ 22 Discount factor (based on 0.9188 0.8442 0.7756 0.7126 Cell B5 above) 23 Discounted Performance $ $ $ Bonus 24 25 Monthly Endorsement $ Contract Payment 26 Discount factor (based on 11.4653 10.5342 Cell B4 above) 27 Discounted Monthly $ $ $ Endorsement Payment 28Endorsement Payment 28 u. 29 Contract's Total Nominal Value 30 Contract's Total Discounted :| Value 1. Given your worksheet calculations, which of the following statements is accurate? Is Steven's estimate of the value of Harry's contract accurate on either a nominal or discounted basis'?I Check all? that appiy. l:l Steven's estimate of the value of Harry's contract is incorrect on a nominal basisr and the error is $22,513. D It is appropriate and necessary to discount the perfon'nance bonus using the bank account's effective annual interest late because of differences in the timing of the compounding of the bank account and that of the payments for the performance bonus. Cl Steven's estimate of the nominal value of Harry's contract is correct. Related Question: The local car dealer creating Harry's endorsement opportunity can earn 6% (compounded quarterly) on his deposited funds. She each quarter, starting exactly two years before the day Harry signs his contract, to fund her endorsement contract. [Note: The future value interest factor of 6% compounded quarterly for eight quarterly periods is 8.4328.] would have to deposit Harry, Congratulations! You've 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 we'll discuss your options. Congrats again! Salary and Incentives: . Harry Hurler hereafter referred to as the "Player," is offered a four-year contract with an annual salary of $444,000 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 if he is selected for consideration of a major award-such as the Cy Young Award (for outstanding pitching). 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 Back Bay Boys, I've also been able to secure the following endorsement opportunity: A local car dealer has offered you a contract that will pay $750 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 dealer's promotional- In addition, the Player will receiye a one-time $20,1IIDDtimeinleague bonus after six months of participation with an MLB team. This bonus will be paid immediately on completion of the sixmonth period. - The Player is offered a performancebased bonus, as Iwell as a milestone bonus. Both are intended to encourage outstanding performance. - The Player is offered the following award-based performance incentive: a 15% bonus if he is selected for consideration ofa major awardsuch as the Cy Young Award (for outstanding pitching}. The Player is also offered the following milestone bonus: 3 $1IEIEI,0EIIIII bonus if he ties Nolan Ftyan's 19?3 singleseason 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 salaryr 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 seyeral progressiye milestones. Exceeding one milestone creates the opportunity to exceed another. In addition to the proposal offered by the Back Bay Boys, We also been able to secure the following endorsement opportunity: A local car dealer has offered you a contract that will pay $50 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 dealer's promotional eyents, such as signing autographs and allowing photographs as requested. We also attached a worksheet that you can use to analyze the deal. I'm in negotiations for the rest of the day, so let's discuss your thoughts on the contract proposal tomorrow. I'm proud of you! Take care, Steyen Steven Sign \"em Wow Sports Agent, RS\"? Tatent Management Inc. | Boston