A famous quarterback just signed a $15 million contract providing $3 million a year for 5 years. A less famous receiver signed a $14 million 5-year contract providing $4 million now and $2 million a year for 5 years. Who is better paid? The interest rate is 10%.
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We need to find out the present value of both to decide.
1. The cash flows are $3 million for 5 years. Assuming the first payment is at the end of year1 and the last payment is at the end of ...
The solution explains how we can use the present value analysis to determine which quarterback is better paid