what is the total value of contract offer #3 ??(refer to picture)

in his senior year at a major Midwestern university, William Sterns had been the second runner up for the famed Heisman Trophy. The trophy goes to the outstanding football player in America and is presented annually by the New York Athletic Club. During the past football season, Sterns had run for over 1,500 yards and scored 18 touchdowns. He also caught 41 passes coming out of the backfield. His time in running the 40-yard dash, which professional scouts consider to be extremely important, was 4.38 seconds. He was voted first team All American by the Associated Press and was a second team All American in the Coaches Poll selections.

On Monday morning, his agent, John Pardy, called to say that he was looking at three different proposals that a major professional football team had made for Stern's services. The team had drafted him in the first round of the National Football League draft as the sixth player to be selected out of the thousands of college football players that were eligible for that year. The Edmonton, Alberta, team of the Canadian Football League was also interested in Wilsons services. The Canadian team had called his agent over the weekend to put its offer on the table. While the National Football League (NFL) team that had drafted Sterns in the first round had exclusive rights overall to other U.S. teams in signing Sterns during the current year, the Canadian team was not bound by such an arrangement and could make any offer it wished and hoped the outcome would be positive.

Actual Proposals:

The NFL team offered the following three proposals. The teams general manager, who was in charge of contract negotiations, said his team would stand behind any of the three offers and it was up to Stearns and his agent to choose which they preferred.

Please go through the valuations for each of the Contract options. Make sure that you show all of your work for each of the offers. Also clearly state which offer you would suggest that Sterns take including a full explanation as to why you support that offer and does your opinion change with a difference in the discount rate.

Offer 1

• $919,500 immediate signing bonus

• $850,000 at the end of each year for the next 5 years

Offer 2

• $209,750 immediate signing bonus

• $100,000 at the end of Years 1 through 4

• $150,000 at the end of Years 5 through 10

• $1,000,000 and the end of Years 11 through 40

Offer 3

• $1,003,900 immediate signing bonus

• $500,000 at the end of Year 1

• $1,000,000 at the end of Year 2

• $1,500,000 at the end of Year 3

• $2,500,000 at the end of Year 4

• $169,500 bonus for any year Luke is selected to play in the Pro Bowl All Star game (25% probability in each year)

Canadian Football League

• $1,119,500 immediate signing bonus

• $2,000,000 at the end of Years 1 through 3

• Only signing bonus is guaranteed (80% probability of being on team each year)

$134,329 Luke Correct! The solution is to treat it like a 4 year annuity and discount the total by the probability that Luke will play. $169,500 * 3.170 * 0.25 = $134,329 What is the total value of Contract offer #3? C Enter a response then click Submit below $