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    Present Value of a Cash Stream

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    A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 10%. He has been offered three possible 4-year contracts. Payments are guaranteed, and they would be made at the end of each year. Terms of each contract are as follows:
    1 2 3 4
    Contract 1 $3,000,000 $3,000,000 $3,000,000 $3,000,000
    Contract 2 $2,000,000 $3,000,000 $4,000,000 $5,000,000
    Contract 3 $7,000,000 $1,000,000 $1,000,000 $1,000,000

    As his adviser, which contract would you recommend that he accept?

    Please show all work.

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    Solution Summary

    A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 10%. He has been offered three possible 4-year contracts. Payments are guaranteed, and they would be made at the end of each year. Terms of each contract are as follows:
    1 2 3 4
    Contract 1 $3,000,000 $3,000,000 $3,000,000 $3,000,000
    Contract 2 $2,000,000 $3,000,000 $4,000,000 $5,000,000
    Contract 3 $7,000,000 $1,000,000 $1,000,000 $1,000,000

    As his adviser, which contract would you recommend that he accept?

    Please show all work.

    $2.19

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