Question

Ruth Gehrig has received contract offers from three professional aquatic badminton teams. The details are below....

Ruth Gehrig has received contract offers from three professional aquatic badminton teams. The details

are below. Which contract is most valuable?

a.Salary of $500,000 per year for 7 years, starting next year.

b. Salary of $333,333 per year for 7 years, starting next

year, plus a $1 million signing bonus, received immediately.

c. $350,000 per year for 3 years, starting next year. In years 4 - 7, the salary increases to $700,000 per year.

The interest rate is 2% per year.

Please use the PV formulas and not excel. I am trying to learn the formulas first :)

0 0
Add a comment Improve this question Transcribed image text
Answer #1

Answer:

a: Salary of $500,000 per year for 7 years, starting next year.

We will use PV of annuity due formula to get PV as of starting next year and then discount the same to get PV as of today:

PV of annuity due = A + A (1- (1 + r) - (n - 1)) /r

PV as of starting next year = 500000 +500000 * (1 - (1 + 2%) - (7 - 1) ) / 2%

= $3,300,715.4453

PV as of now =PV as of starting next year / (1 + 2%) = $3,300,715.4453 / (1 + 2%) = $3,235,995.53

PV = $3,235,995.53

(b) Salary of $333,333 per year for 7 years, starting next year, plus a $1 million signing bonus, received immediately.

PV as of starting next year = 333333 +333333 * (1 - (1 + 2%) - (7 - 1) ) / 2% = 2200474.7631

PV as of now = PV as of starting next year /(1 + 2%) + $1,000,000 = $2200474.7631 /(1 + 2%) +1000000 = $3,157,328.20

PV = $3,157,328.20

(c) $350,000 per year for 3 years, starting next year. In years 4 - 7, the salary increases to $700,000 per year.

PV at the start of year 4 = 700000 + 700000 * (1 - (1 + 2%) - (4 - 1) ) / 2% = 2718718.29085

PV (as of now) of years 4 - 7 salary = 2718718.29085 / (1 + 2%) 4 =2,511,675.45766

PV at the start of next year of salary from year 1 to year 3 = 350000 + 350000 * (1 - (1 + 2%) - (3 - 1) ) / 2% = 1,029,546.32834

PV (as of now) of salary from year 1 to year 3 = 1,029,546.32834 / (1+ 2%) = 1,009,359.14543

PV = PV of salary from year 1 to year 3 + PV of years 4 - 7 salary = 1,009,359.14543 + 2,511,675.45766 = $3,521,034.60

PV = $3,521,034.60

Since PV of contract 3 is highest, Contract 3 is most valuable.

Add a comment
Know the answer?
Add Answer to:
Ruth Gehrig has received contract offers from three professional aquatic badminton teams. The details are below....
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • XC Quiz 2 Show all work. Label and clearly explain your answer. This is very important....

    XC Quiz 2 Show all work. Label and clearly explain your answer. This is very important. 1) You must answer in order to get full credit. 2) If you do show your work, and your answer is wrong. you can still earn a substantial amount of credit depending on how serious the error is. 3) If your answer is wrong, and you don't show your work, you will get a zero. Ruth Gehrig has received contract offers from three professional...

  • It is December 29. As the agent for a professional baseball player, you are evaluating three...

    It is December 29. As the agent for a professional baseball player, you are evaluating three proposed contracts submitted by the team. Your client must agree to terms by midnight December 31, or be ineligible for play until May 1. The three proposals are as follows: i) a guaranteed three-year contract, calling for an annual salary of $450,000 per year. ii) a three-year contract with a $100,000 signing bonus, an annual salary of $350,000, and a payment of $250,000 five...

  • please show all working and answer all questions 5. Monica Brighton, your aunt, left you the...

    please show all working and answer all questions 5. Monica Brighton, your aunt, left you the sum of $5,000 a year forever with payments starting next year in her will. However, the news is better. She has specified that the amount should grow at 5% per year to maintain purchasing power. Given an interest rate of 12%, what is the PV of the inheritance? 6. Right after graduating from Drake, Gracie Vasquez bought a Chevrolet Camaro Coupe 1SS, V8 6.2L,...

  • show all wokring 4. You have a credit card account that charges interest at the rate...

    show all wokring 4. You have a credit card account that charges interest at the rate of 1.45% per month a. What is APR? EAR? b. In this month's statement, you found out that your credit card company changed its policy. It now charges interest at the rate of 0.0475% per day and claims that it provides better rate than before, since its new APR is lower than previous APR. Do you agree? Are you better or worse off? Show...

  • deposit today 25,000 value 10 years from today 50,000 r please help with nuimber 6, but...

    deposit today 25,000 value 10 years from today 50,000 r please help with nuimber 6, but only in EXCEL CHAPTER 2 The Time Value of Money 47 5. (PV single cash flow) Your friend comes to you with a $2,000 post-dated check. The check is due 2 years from today. If the interest rate is 5%, what is the value of the check today? 6. (PV single cash flow, finding r) If you deposit $25,000 today, Union Bank offers to...

  • 1. How does Lexy’s age affect her decision to get an MBA?               A...

    1. How does Lexy’s age affect her decision to get an MBA?               A Aceto, Frank BUS 622 Week 3 Case Study Template F19- Excel AutoSave Off Share Review File Home Insert Page Layout Formulas Data View Help Tell me what you want to do AutoSum As 12A A Wrap Text Calibri General Fill Paste в I U Conditional Format as Insert Delete Format Sort & Find & - A 0 00 00 0 | Merge & Center...

  • What is the issue regarding the marketable securities as per below highlighted in red on Exhibit...

    What is the issue regarding the marketable securities as per below highlighted in red on Exhibit 2? See the below information regarding the issue ADVANCED HOME APPLIANCES INCOME STATEMENT For the year ended December 31 (unaudited) 2020 Sales Cost of sales Gross profit $2,775,990 1.499,035 1,276,955 Expenses Amortization Advanced and administrative Marketing and sales Office Expense Wages and benefits, administration Total operating expenses 155,490 534,500 459,704 395,980 515,000 $1,905,184 Operating income (loss) $ (628,229) Gain (losses) on marketable securities Impairment...

  • 1.2 Recruitment is one of the crucial functions of HRM. Based on the information provided below,...

    1.2 Recruitment is one of the crucial functions of HRM. Based on the information provided below, how would you describe THE COMPANY’s approach to recruitment, before and after the implementation of the Brand Ambassador Program? How did the use of social media lead to the revision of the whole approach regarding recruitment? How ‘THE COMPANY’ Developed a Brand Ambassador Program At ‘THE COMPANY’ we usually categorize Employment Brand at ‘THE COMPANY’ into four big ‘buckets’: candidate experience, brand ambassador programs,...

  • Please read the article and answer about questions. You and the Law Business and law are...

    Please read the article and answer about questions. You and the Law Business and law are inseparable. For B-Money, the two predictably merged when he was negotiat- ing a deal for his tracks. At other times, the merger is unpredictable, like when your business faces an unexpected auto accident, product recall, or government regulation change. In either type of situation, when business owners know the law, they can better protect themselves and sometimes even avoid the problems completely. This chapter...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT