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How much better is the second contract in present value term

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Reference no: EM132960383

Vaughn Hardy recently rejected a $16,000,000 five year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $6,000,000 and annual payments of $2,000,000. To sweeten the deal, the president of player personnel for the Seals has now offered a $17,600,000 five year contract. This contract calls for annual increases and a balloon payment at the end of five years.

Year 1 2,000,000
Year 2 2,080,000
Year 3 2,160,000
Year 4 2,240,000
Year 5 2,320,000
Year 5 balloon payment 6,800,000
Total $17,600,000

Problem 1: Suppose you are Hardy's agent and you wish to evaluate the two contracts using a required rate of return of 15%. In present value terms, how much better is the second contract?

Reference no: EM132960383

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