CBS agreed to pay $1,000M per year for nine years to retain the rights to the...

CBS agreed to pay $1,000M per year for nine years to retain the rights to the football games. The first payment will be made at the end of this year. If CBS has an opportunity interest rate of 12%, what is the value today of the total payments that CBS will make?

Solutions

Expert Solution

Given that,

CBS will pay PMT = $1000M per year for next t = 9 years at the end of each year.

interest rate r = 12%

So, value of this investment today can be calculated using PV formula of annuity

PV = PMT*(1 - (1+r)^-t)/r = 1000*(1 - 1.12^-9)/0.12 = $5328.25M

So, the value today of the total payments that CBS will make is $5328.25M

jeff jeffy answered 2 years ago

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