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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?

#### 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?

\$2.19