How much better is the second contract

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Reference no: EM132755876

Question - Pearl Hardy recently rejected a $20,013,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $7,613,000 and annual payments of $2,480,000. To sweeten the deal, the president of player personnel for the Seals has now offered a $22,048,000, five-year contract. This contract calls for annual increases and a balloon payment at the end of 5 years.

Year 1 $2,539,000

Year 2 2,652,000

Year 3 2,659,000

Year 4 2,813,000

Year 5 2,952,000

Year 5 balloon payment 8,433,000

Total $22,048,000

Suppose you are Hardy's agent and you wish to evaluate the two contracts using a required rate of return of 13 percent. In present value terms, how much better is the second contract?

Reference no: EM132755876

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