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How much better is the second contract

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Question - Martinez Hardy recently rejected a $18,800,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $7,050,000 and annual payments of $2,350,000. To sweeten the deal, the president of player personnel for the Seals has now offered a $20,610,000, five-year contract. This contract calls for annual increases and a balloon payment at the end of five years.

Year 1 $2,350,000

Year 2 2,430,000

Year 3 2,510,000

Year 4 2,590,000

Year 5 2,740,000

Year 5 balloon payment 7,990,000

Total $20,610,000

Suppose you are Hardy's agent and you wish to evaluate the two contracts using a required rate of return of 15 percent. In present value terms, how much better is the second contract?

Reference no: EM132916398

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