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You have been hired by Baltimore Sports Management Associates, which negotiates contracts and manages the financial lives of professional athletes. You are assigned to negotiate
You have been hired by Baltimore Sports Management Associates, which negotiates contracts and manages the financial lives of professional athletes. You are assigned to negotiate the contract for Maria Park, who was just drafted by the Washington Mystics WNBA team. The Mystics have offered Maria two choices, as shown below. Both contracts are 100% guaranteed, no exceptions. Contract Choices: A) a $6.5 million contract that pays a $4 million signing bonus immediately followed by 5 annual payments of $500,000 paid at the end of each year; B) a $7.0 million contract with no signing bonus, paying $1.4 million annually at the end of each year for 5 years. Given the current low interest rate environment, you believe an appropriate discount rate for the future cashflows is 5.00%. Which contract is worth more i.e. higher Present Value)? How much more is it worth than the other contract? Use the tools you have learned to prove your
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