When Alex Roanguez moved to the Texas Rangers In 2001, ne received a lat of attentioN tor his "$252 million" contract (the total of the payments promised was $252 million). He later moved to the Yankees, assume the following in order signed it of his contrac determine the va Rodriguez earns $16 million in the first year, $17 million in years 2 through 4, $19 million in years 5 and 6, $23 million bonus spread equally over the first 5 years (S2 million per year). His deferred payments begin in 2011. The deferred pay- ment amounts total $33 million and are $5 million, then $4 million, then eight amounts of $3 million (ending in 2020). However, the actual payouts will be different. All 10 years, meaning that it will actually be $6 year 7, and $27 million in years 8 through 10. He also receives his $10 million signing r'ine deferred payments will earn 3% per year untl they are paid. For example, the $5 million is deferred from 2001 to 2011, or the $4 million payment deferred to eferred 10 years) when paid. Assume deferred fr (each payment The contract is a 10-year contract, but each year has a deferred component so that cash flows are paid out over a total of 20 years. The contractual payments, signing bonus, and deferred components are given below. Note that, by contract, the defemred components are not paid in the year they are eamed, but instead are paid (plus interest) 10 years later. 2003 2004 2001 2002 2005 2006 2007 2008 2009 2010 $16 M $19 M S17 M $23 M $17 M S17 M $19 M $2 M $27 M $27 M $27 M $2 M $2 M $2 M $2 M 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Deferred $3 M S3 M S3 M S3 M S5 M $4 M $3 M $3 M $3 M $3 M Assume that an appropriate discount rate for A-Rod to apply to the contract payments is 7% per year . a. Calculate the true promised payments under this contract, including the deferred payments with interest. b. Draw a timeline of all of the payments c. Calculate the present value of the contract. Compare the present value of the contract to the quoted value of $252 million. What explains the difference? a. Calculate the true promised payments under this contract, including the deferred payments with interest values to the nearest integer.) The true promised payments under this contract for years 1 through 5 are: (Round Year 1: $million Year 2: $ million Year 3: $ million. Year 4: $ million. Year 5: $ million. The true promised payments under this contract for years 6 through 10 are: (Round all values to the nearest million.) Year 6: Smillion. Year 7: S million Year 8: S million. Year 9: S million Year 10: Smillion. through 20 are: (Round all values to four decimal places.) The true promised payments under this contract for years Year 11: $ million. Year 12: Smillion. Years 13 to 20: Smillion. b. Draw a timeline of all of the payments. The timeline of all the payments is shown below (cash flows in millions): (Select the best choice below.) O A. Year 2 8 10 11 12 13 20 4 - Cash Flows $18 $6.72 $5.38 $4.03 $19 $19 S19 S21 $19 $23 $23 $27 $27 S4.03 O B. Year 7 9 10 11 1 3 4 5 8 12 13 20 2 .. S27 Cash Flows $18 $19 $19 $19 S19 S23 $27 $27 $6.72 $5.38 S4.03 $4.03 S21 2. O C. Year 1 3 4. 5 6 7 8 9 10 11 12 13 20 Cash Flows $18 $18 $19 $19 S21 $19 $23 $27 $27 $27 $6.72 $5.38 $4.03 $4.03 OD. Year 1 6 7 8 9 10 11 12 13 20 - - Cash Flows $18 S4.03 $19 $19 $19 $21 $19 S23 $27 $27 S27 $6.72 $5.38 $4.03 c. Calculate the present value of the contract f the contract is Smillion. (Round to the nearest million.) The present value d. Compare the present value of the contract to the quoted value of $252 million. What explains the difference? (Select the best choice below.) The reason for the difference is although the $252 million quoted value does discount the future cash flows, it does not adjust the deferred payments for accrued interest. O A. O B. The reason for the difference is the $252 million quoted value does not discount the future cash flows or adjust deferred payments for accrued interest. O C. The reason for the difference is although the $252 million quoted value does adjust the deferred payments for accrued interest, it does not discount the future cash flows. O D. The reason for the difference is that the contract was quoted incorrectly