PV for Rookie Contract
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PV of a cash flow stream A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 10 percent. 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 listed below:
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 advisor, which would you recommend that he accept?
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Solution Summary
Using formula for calculating present value, this solution calculates the value of each contract and determines which one would be the best to accept.
Solution Preview
The formula for each is Cash Flow divided by one plus the rate raised to the term power. See the attached Excel sheet for the calculations.
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