Question

A professional baseball player signs a contract for $158 million to play with a team for 7 years. He and his team agree that the contract will be spread out so that the player is paid beyond the 7 years. The payment plan for the contract is as follows: $19 million each year for years 1 through 7. $3.1 million each year for the next 8 years. $1.4 million each year for the next 8 years. You should assume that the baseball team will pay the player annually at the end of each year and that he will receive the first $19 million at the end of the first year. The player receives money for 23 years. If the interest rate is 4.6% compounded annually, how much does the baseball team need to deposit in year 0 in order to fully fund this contract? Express your answer in millions of dollars."

Answer 1

The Team need to deposit $131,101,301 today to fully fund this cocntract.

The explanation is as follows:

Year	Cash flows	PVF @4.6%	Present Value
1	19,000,000	0.956	18164435.9
2	19,000,000	0.914	17365617.5
3	19,000,000	0.874	16601928.8
4	19,000,000	0.835	15871824.9
5	19,000,000	0.799	15173828.7
6	19,000,000	0.764	14506528.4
7	19,000,000	0.730	13868574
8	3,100,000	0.698	2163257.5
9	3,100,000	0.667	2068123.8
10	3,100,000	0.638	1977173.81
11	3,100,000	0.610	1890223.53
12	3,100,000	0.583	1807097.06
13	3,100,000	0.557	1727626.25
14	3,100,000	0.533	1651650.34
15	3,100,000	0.509	1579015.62
16	1,400,000	0.487	681743.621
17	1,400,000	0.466	651762.544
18	1,400,000	0.445	623099.947
19	1,400,000	0.425	595697.846
20	1,400,000	0.407	569500.809
21	1,400,000	0.389	544455.84
22	1,400,000	0.372	520512.275
23	1,400,000	0.355	497621.678
Present value of cash flows			131,101,301