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Suppose a college junior is considering whether to declare himself eligible for the NFL draft. He...

Suppose a college junior is considering whether to declare himself eligible for the NFL draft. He expects to earn a salary of $1 million/year by declaring early. If he waits until after his senior year he expects his salary to be $1.1 million. In both cases, he will sign a 2-year contract and plans to retire when this contract expires. His personal discount rate is 5%.

The present discounted value of entering the draft early is?

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Answer #1

Present discounted value as a junior / entering the draft early is
= 1/(1 + 5%) + 1/(1 + 5%)^2
= 1.86 million
This is the required value.

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