Question
Vaughn Hardy recently rejected a $19,982,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $7,402,000
Vaughn Hardy recently rejected a $19,982,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $7,402,000 and annual payments of $2,516,000. To sweeten the deal, the president of player personnel for the Seals has now offered a $22,063,000, five-year contract. This contract calls for annual increases and a balloon payment at the end of 5 years.
Year 1 $2,539,000
Year 22,644,000
Year 32,656,000
Year 42,843,000
Year 52,933,000
Year 5 balloon payment 8,448,000
Total $22,063,000
Suppose you are Hardy's agent and you wish to evaluate the two contracts using a required rate of return of 13 percent. In present value terms, how much better is the second contract?(Round present value factor calculations to 4 decimal places, e.g. 1.2151 and final answers to 0 decimal places, e.g. 125. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Present value of old contract__________
Present value of new contract___________
In present value terms, the second contract isnot better/better than the old one.
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