Question

A famous quarterback just signed a $19.2 million contract providing $3.2 million a year for 6 years. A less famous receiver signed a $21.2 million 6-year contract providing $5 million now and $2.8 million a year for 6 years. The interest rate is 9%. a. What is the PV of the quarterback's contract? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Present value ſ million b. What is the PV of the receiver's contract? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Present value million c. Who is better paid? Quarterback Receiver

Answer 1

Statement showing Cash flows			Quarterback		Receiver
Particulars	Time	PVf 9%	Amount	PV	Amount	PV
Cash inflows	-	1.0000	-	-	5,000,000.00	5,000,000.00
Cash inflows	1.00	0.9174	3,200,000.00	2,935,779.82	2,800,000.00	2,568,807.34
Cash inflows	2.00	0.8417	3,200,000.00	2,693,375.98	2,800,000.00	2,356,703.98
Cash inflows	3.00	0.7722	3,200,000.00	2,470,987.14	2,800,000.00	2,162,113.74
Cash inflows	4.00	0.7084	3,200,000.00	2,266,960.68	2,800,000.00	1,983,590.59
Cash inflows	5.00	0.6499	3,200,000.00	2,079,780.44	2,800,000.00	1,819,807.88
Cash inflows	6.00	0.5963	3,200,000.00	1,908,055.45	2,800,000.00	1,669,548.52
PV of Cash Inflows =PVCI				14,354,939.49		17,560,572.05
a) PV of Quarterback contract	14.35 million
b) PV of receiver contract	17.56 Million
c) Receiver as higher PV