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28 May, 00:58

A famous quarterback just signed a $16.5 million contract providing $3.3 million a year for 5 years. A less famous receiver signed a $15.5 million 5-year contract providing $4 million now and $2.3 million a year for 5 years. The interest rate is 10%. 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.) 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.)

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  1. 28 May, 02:08
    0
    a. $12.51 million

    b. $12.72 million

    Explanation:

    The computation of the present value is shown below

    a. For quarterback's contract:

    = Annual cash flows * PVIFA for 5 years at 10%

    = $3.3 million * 3.7908

    = $12.51 millions

    Refer to the PVIFA table

    b. For receivers's contract:

    = Annual cash flows * PVIFA for 5 years at 10%

    = $4 million + $2.3 million * 3.7908

    = $12.72 millions

    Refer to the PVIFA table
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Home » Business » A famous quarterback just signed a $16.5 million contract providing $3.3 million a year for 5 years. A less famous receiver signed a $15.5 million 5-year contract providing $4 million now and $2.3 million a year for 5 years. The interest rate is 10%.
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