Year 1: $1.35 million Year 2: $1.86 milson Year 3:$2.24 million Year 4: $2.95 million Year 5:$3.03 million Under the terms of the agreement all payments are made at the end of each year. Instead of accepting the contract, the baseball player asks his agent to negotiate a contract that has a present value of $1.66 million more than that which has been offered. Moreover, the player wants to receive his payments in the form of a 5 -year ANNUITY DUE. All cash flows are discounted at 10.00 percent. If the team were to agree to the player's terms, what would be the player's annual salary (in millions of dollars)? (Express answer in millions. $1,000,000 would be 1.00) Answer format: Currency: Round to: 4 decimal places. A baseball player is offered a 5 -year contract that pays him the following amounts: Year 1: 51.0 million Yer 2. 1.5 million Year 3: 2.0 milition Yeat 4: 2.5 million Year 5: 1.0 mililion Under the terms of the agreement all payments are made at the end of each year. Instead of accepting the contract, the baseball player asks his agent to negotiate a contraet that has a present value of $1.5 million more than that which has been offered. Moreover, the player wants to receive his payments in the form of a 5-year ANNUTTY DUE. All cash flows are discounted at 10 perceat. If the team were to agree to the player's terns, what would be the player's annual salary (in millions of dollars)? SOLUTION: By hand solution: PV=t=0N(1+r)tCFtPV=CF0+(1+r)1CF1+(1+r)2CF2+(1+r)3CF3+(1+r)4CF4+(1+r)5CF5PV=(1.10)1$1+(1.10)2$1.5+(1.10)3$2.0+(1.10)4$2.5+(1.10)5$3.0=$7.22 With financial calculator: Under the terms of the agreement all payments are made at the end of each year. Instead of accepting the contract, the baseball player asks his agent to negotiate a contract that has a present value of $1.5 million more than that which has been offered. Moreover, the player wants to receive his payments in the form of a 5-year ANNUITY DUE. All cash flows are discounted at 10 percent. If the team were to agree to the player's terms, what would be the player's annual salary (in millions of dollars)? SOLUTION: By hand solution: PV=t=0N(1+r)tCFtPV=CF0+(1+r)1CF1+(1+r)2CF2+(1+r)3CF3+(1+r)4CF4+(1+r)5CF5PV=(1.10)1$1+(1.10)2$1.5+(1.10)3$2.0+(1.10)4$2.5+(1.10)5$3.0=$7.22 With financial calculator: Use the cash flow function on the TI-BA Plus with the following key strokes: CF,2nd,CE/C : This clears out the memory to start a new problem. CFKEY,CF0=0,C01=1,C02=1.5,C03=2,C04=2.5,C05=3, NPV KEY ,I=10,CPTNPV=7.22 With Microsoft Excel: =NPV(10%,1,1.5,2,2.5,3)0=$7.22 million Next, convert the PV of the existing contract to the desire PV. New PV= Old PV+B Bonus =$7.22+$1.50=$8.72 million Finally, convert the new NPV to a yearly payment. Keep in mind he wants the payments at the start of the year, so we next convert to an annulty due. PV=rPMTx[1(1+r)N1]x(1+r) $8.72=0.10PMTx[1(1.10)51](1.10) PMT=$2.09