Question

In 2015, a baseball player signed a contract reported to be worth $98.5 million. The contract was to be paid as $14.7 million in 2015, $14.9 million in 2016, $17.1 million in 2017, $17.2 million in 2018, $17.2 million in 2019, and $17.4 million in 2020. If the appropriate interest rate is 9 percent, what kind of deal did the player snag? Assume all payments are paid at the end of the year. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value ____________

Answer 1

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what kind of deal did the player snag
Deal is signed for the total cash flow of 98.5 million but problem is cash will be received in future
therefore present value of cash flow is not the $98.5 million but it will be lower than that.
Also player is exposed to default risk. There may be situation in future where in cash flow is not paid as promised
Present value
i	ii	iii	iv=ii*iii
year	Cash flow ($ mil)	PVIF @ 9%	present value ($ mil)
2015	14.7	0.9174	13.49
2016	14.9	0.8417	12.54
2017	17.1	0.7722	13.20
2018	17.2	0.7084	12.18
2019	17.2	0.6499	11.18
2020	17.4	0.5963	10.38
	98.5		72.97
therefore present value =			72,970,392.90