William Brown, a professional athlete, currently has a contract that will pay him a large...
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William Brown, a professional athlete, currently has a contract that will pay him a large amount in the first year of his contract and smaller amounts thereafter. He and his agent have asked the team to restructure the contract. The team, though reluctant, obliged. William and his agent came up with a counteroffer.
Current contract.
Year 1
$ 7,092,00
Year 2
$ 3,645,00
Year 3
$ 2,512,00
Year 4
$ 1,693,00
Teams offer
Year 1
$ 3,475,08
Year 2
$ 3,827,25
Year 3
$ 3,567,04
Year 4
$ 3,639,95
Counteroffer.
Year 1
$ 4,609,80
Year 2
$ 7,545,15
Year 3
$ 3,366,08
Year 4
$ 2,607,220
a) What is the present values of Current Contract using a 14 percent discount rate? (Round to 2 decimals)
b) What is the present values of Team's Offer using a 14 percent discount rate? (Round 2 decimals)
c) What is the present values of Counteroffer using a 14 percent discount rate? (Round 2 decimals)
d) Which of the three contracts has the highest present value?
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