Question
In: Finance
5.20 A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 6%. He...
5.20 A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 6%. He has been offered three possible 4-year contracts. Payments are guaranteed, and they would be made at the end of each year. Terms of each contract are as follows:
| 1 | 2 | 3 | 4 |
| Contract 1 | $3,500,000 | $3,500,000 | $3,500,000 | $3,500,000 |
| Contract 2 | $2,000,000 | $3,000,000 | $4,000,000 | $5,500,000 |
| Contract 3 | $7,000,000 | $1,500,000 | $1,500,000 | $1,500,000 |
As his adviser, which contract would you recommend that he accept?
Select the correct answer.
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Solutions
Expert Solution
Solution :
Present Value of Contract 1 = $ 12,127,869.64
Present Value of Contract 2 = $ 12,271,774.05
Present Value of Contract 3 = $ 10,386,337.66
The Present value of Contract 2 is the highest when compared to the present values of Contracts 1 & 3.
Thus the quarterback should choose Contract 2.
The solution is Option a. Contract 2 gives the quarterback the highest present value; therefore, he should accept Contract 2
Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.
jeff jeffy answered 3 months agoRelated Solutions
A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 9%. He has...
A rookie quarterback is negotiating his first NFL contract. His
opportunity cost is 9%. He has been offered three possible 4-year
contracts. Payments are guaranteed, and they would be made at the
end of each year. Terms of each contract are as follows:
1
2
3
4
Contract 1
$2,500,000
$2,500,000
$2,500,000
$2,500,000
Contract 2
$2,500,000
$3,500,000
$4,000,000
$5,000,000
Contract 3
$6,500,000
$1,000,000
$1,000,000
$1,000,000
As his adviser, which contract would you recommend that he
accept?
Select the correct answer....
A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 10%. He has...
A rookie quarterback is negotiating his first NFL contract. His
opportunity cost is 10%. He has been offered three possible 4-year
contracts. Payments are guaranteed, and they would be made at the
end of each year. Terms of each contract are as follows:
1
2
3
4
Contract 1
$3,000,000
$3,000,000
$3,000,000
$3,000,000
Contract 2
$2,000,000
$3,000,000
$4,000,000
$5,000,000
Contract 3
$6,500,000
$1,000,000
$1,000,000
$1,000,000
As his adviser, which contract would you recommend that he
accept?
Select the correct answer....
A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 10%. He has...
A rookie quarterback is negotiating his first NFL contract. His
opportunity cost is 10%. He has been offered three possible 4-year
contracts. Payments are guaranteed, and they would be made at the
end of each year. Terms of each contract are as follows:
1 2 3 4
Contract 1 $2,500,000 $2,500,000 $2,500,000 $2,500,000
Contract 2 $2,500,000 $3,500,000 $4,000,000 $5,500,000
Contract 3 $6,500,000 $1,500,000 $1,500,000 $1,500,000
As his adviser, which contract would you recommend that he
accept? Select the correct answer....
rookie quarterback is negotiating his first NFL contract. His opportunity cost is 8%. He has been...
rookie quarterback is negotiating his first NFL contract. His
opportunity cost is 8%. He has been offered three possible 4-year
contracts. Payments are guaranteed, and they would be made at the
end of each year. Terms of each contract are as follows:
1
2
3
4
Contract 1
$3,500,000
$3,500,000
$3,500,000
$3,500,000
Contract 2
$2,000,000
$3,500,000
$4,000,000
$5,500,000
Contract 3
$6,500,000
$1,000,000
$1,000,000
$1,000,000
As his adviser, which contract would you recommend that he
accept?
Select the correct answer.
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1.0
3.5
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