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    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:


    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 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.

    The answer you are ...

    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.