A despised football coach is scheduled to make $945,400.00 per year for the next 8 years....

A despised football coach is scheduled to make $945,400.00 per year for the next 8 years. The first payment is scheduled to be made exactly one year from today. After a 3-9 record last year, the athletic department would like to buy out the remaining 8 years of his contract. The athletic department wants to value the remaining years with a 10.00% discount rate. The coach’s agent would like to use 4.00%.

What is the present value of the athletic department offer? What is the present value of the agent’s offer? Round answers to 2 decimal places.

Expert Solution

	Present value of the athletic department offer	P×[1-(1÷(1+r)^n)]÷r

	Here,

1	Interest rate per annum	10.00%
2	Number of years	8
3	Number of compoundings per per annum	1
4 = 1÷3	Interest rate per period ( r)	10.00%
5 = 2×3	Number of periods (n)	8
	Payment per period (P)	$ 945,400

	Present value of the athletic department offer	$ 5,043,639.23
		945400*[1-(1/(1+10%)^8]/10%

	Present value of the agent's offer	P×[1-(1÷(1+r)^n)]÷r

	Here,

1	Interest rate per annum	4.00%
2	Number of years	8
3	Number of compoundings per per annum	1
4 = 1÷3	Interest rate per period ( r)	4.00%
5 = 2×3	Number of periods (n)	8
	Payment per period (P)	$ 945,400

	Present value of the agent's offer	$ 6,365,137.00
		945400*[1-(1/(1+4%)^8]/4%

jeff jeffy answered 2 years ago

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