Question

In: Finance

An All-Pro offensive lineman is in contract negotiations. The team has offered the following salary structure...

An All-Pro offensive lineman is in contract negotiations. The team has offered the following salary structure (note: today is Year=0). The appropriate discount rate is 12% per year, compounded monthly.

Year

Salary ($)

1

$3,500,000

2

$4,000,000

3

$4,500,000

4

$5,000,00

a) The lineman wants the timing of the payments modified. (He is happy with the overall value of the contract – so no increase in overall value, measured in PV terms -- is needed.)

Instead of the initial terms offered, he would like to receive a $3,000,000 signing bonus, today. In addition, he wants the remaining overall value of the contract paid out in equal quarterly installments (beginning one quarter from today) over the next four years (last payment at t=4. So, there are 16 quarterly payments). What payment amount should he receive each quarter (for the next four years)?

b) The lineman has changed his mind. He now wants the overall value of the contract increased by $2,000,000. In addition, he wants to receive quarterly payments (over the next four years) that grow by 2% each quarter. If the first quarterly payment is received one quarter from today and the last is received at t=4, what amount should he receive in the first quarterly payment (received 3 months from today)?​

Please fully answer the question and show your work. Also, provide the formulas used to solve this problem.

Solutions

Expert Solution

The problem is related to Calculation of Present Value.

Year Amount Discount Factor Calculation of Pv
1 3500000 1.136 3976000
2 4000000 1.291 5164000
3 4500000 1.467 6601500
4 500000 1.667 833500

Total Present Value= 16575000

In order to calculate the present factor, the following formula has to be applied

Present Factor or Discount Factor= (1/1-discount factor)

In the above problem discount rate is equal to 12% per year, instead of yearly basis the lineman requires it on a quarterly basis of calcuations for installments.

a) if he recieves $3000,000 , then how much amount he recieves quarterly

=3000000*1/16*1/4 =$ 46875

Each quarter he should recieve $ 46875 for the next four years.

b) Given :- Previously $3000000 and now the overall contract increased by $2000000.

3000000+2000000*1/16*1/4= S78185

In each Quarter he should recieve 2% growth in payments for each quarter

78185*2/100= $1562.5

Hence overall first payment is 78175+1562.5= $79737.5

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

An All-Pro offensive lineman is in contract negotiations. The team has offered the following salary structure...
An All-Pro offensive lineman is in contract negotiations. The team has offered the following salary structure (note: today is Year=0). The appropriate discount rate is 12% per year, compounded monthly. Year Salary ($) 1 $3,500,000 2 $4,000,000 3 $4,500,000 4 $5,000,000 a) The lineman wants the timing of the payments modified. (He is happy with the overall value of the contract – so no increase in overall value, measured in PV terms -- is needed.) Instead of the initial terms...
An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure:...
An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure: Time Salary 0 $ 6,100,000 1 4,700,000 2 5,200,000 3 5,700,000 4 7,100,000 5 7,800,000 6 8,600,000 All salaries are to be paid in a lump sum. The player has asked you as his agent to renegotiate the terms. He wants a signing bonus of $9.6 million payable today and a contract value increase of $1,600,000. He also wants an equal salary paid every...
An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure:...
An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure: Time Salary 0 $ 6,700,000 1 $ 5,300,000 2 $ 5,800,000 3 $ 6,300,000 4 $ 7,700,000 5 $ 8,400,000 6 $ 9,200,000    All salaries are to be paid in lump sums. The player has asked you as his agent to renegotiate the terms. He wants a $10.2 million signing bonus payable today and a contract value increase of $2,200,000. He also wants...
An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure:...
An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure: Time Salary 0 $ 7,400,000 1 $ 6,000,000 2 $ 6,500,000 3 $ 7,000,000 4 $ 8,400,000 5 $ 9,100,000 6 $ 9,900,000 All salaries are to be paid in lump sums. The player has asked you as his agent to renegotiate the terms. He wants a $10.9 million signing bonus payable today and a contract value increase of $2,900,000. He also wants an...
An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure:...
An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure: Time Salary 0 $ 6,200,000 1 $ 4,800,000 2 $ 5,300,000 3 $ 5,800,000 4 $ 7,200,000 5 $ 7,900,000 6 $ 8,700,000    All salaries are to be paid in lump sums. The player has asked you as his agent to renegotiate the terms. He wants a $9.7 million signing bonus payable today and a contract value increase of $1,700,000. He also wants...
An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure:...
An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure: Time Salary 0 $ 5,700,000 1 $ 4,300,000 2 $ 4,800,000 3 $ 5,300,000 4 $ 6,700,000 5 $ 7,400,000 6 $ 8,200,000    All salaries are to be paid in lump sums. The player has asked you as his agent to renegotiate the terms. He wants a $9.2 million signing bonus payable today and a contract value increase of $1,200,000. He also wants...
Boston Bruins – the ice hockey team - has offered Bobby Esposito the following two contract...
Boston Bruins – the ice hockey team - has offered Bobby Esposito the following two contract options. The first contract offer is $3 million a year for 5 years (first payment a year from now) plus a signing bonus of $1 million (paid immediately). The second five year contract offers a first-year payment of $2.5 million dollars (paid one year from now), but after that the payments grow at an annual rate of 12%. Assuming the interest rate is 5%,...
how can a company structure e-mail negotiations to avoid “accidnetally” forming a contract?
how can a company structure e-mail negotiations to avoid “accidnetally” forming a contract?
Wilbur has been offered a job at a salary that would put him in the 24%...
Wilbur has been offered a job at a salary that would put him in the 24% marginal tax bracket. In addition to his salary, he would receive health insurance coverage. Another potential employer does not offer health insurance but has agreed to match the first offer on an after-tax and insurance basis. The cost of health insurance comparable to that provided by the other potential employer is $9,000 per year. How much more in salary must the second potential employer...
You are the ceo of a facility and Aetna has offered you a contract. Develop the...
You are the ceo of a facility and Aetna has offered you a contract. Develop the P&L statement for the following assumptions between 0 and 65,000 procedures in increments of 2,500: •Aetna is offering you a contract that will pay you $55 per procedure •Variable costs per procedure = $37.00 •Fixed costs = $1,000,000 •You will need to hire an additional salaried employee with volumes of 40,000 or more at an annual cost of $50,000 please show excel sheet so...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT