Compute the nominal value of the contract

Assignment Help Financial Management

Reference no: EM132072693

In September 2017, Russell Westbrook has recently signed the richest contract in NBA history, a so-called “super-max” deal starting from the 2018-19 season and running for five years that would entitle him to a salary equal to 35% of the projected salary cap of $100 million that year, with 8% annual raises thereafter. For the sake of simplicity, assume that he receives the entirety of his annual salary as a lump sum at the beginning of each season, and that these payments grow at a constant rate, rather than increasing linearly as they do in actual NBA contracts.

(a) Write Westbrook’s salary schedule, and compute the nominal value of the contract, as you would have seen it reported in the news.

(b) Assuming an interest rate of 3%, calculate the present value, on the date of signing, of each annual payment and the contract as a whole.

(c) Calculate the present value of the contract using the growing annuity formula. What restriction of the perpetuity formula does not apply to the annuity formula?

Reference no: EM132072693

Questions Cloud

The expected exchange rate in one year : calculate one-year CHF interest rate, the expected exchange rate in one year (CHF/£)

Changes in growth and stock valuation : Changes in Growth and Stock Valuation Consider a firm that had been priced using a 10 percent growth rate and a 13 percent required rate.

What are the implications of full employment : What are the implications of a Full Employment in the US in terms of likely monetary policy decisions.

Format similar to real estate finance and investments : Prepare a 5-year forecast of Net Operating Income in a format similar to Real Estate Finance and Investments

Compute the nominal value of the contract : Write Westbrook’s salary schedule, and compute the nominal value of the contract, as you would have seen it reported in the news.

Puffery and fraudulent misrepresentation : There is often a fine line between puffery and express warranties or puffery and fraudulent misrepresentation.

United states is close to reaching full-employment : The article below suggests that the Economy of the United States is close to reaching full-employment

What was the capital gain of the tips in dollars : At the beginning of this year, the CPI was 198.40 and was at 204.20 at the end of the year. What was the capital gain of the TIPS in dollars?

Money or funds can be thought of as commodity : Money or funds can be thought of as a commodity, like any other commodity that can be bought or sold.

User Account

All Pages