A famous quarterback just signed a $16.5 million contract providing $3.3 million a year for 5 years. A less famous receiver signed a $15.5 million 5-year contract providing $4 million now and $2.3 million a year for 5 years. The interest rate is 10%. a. What is the PV of the quarterback's contract? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) b. What is the PV of the receiver's contract? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

Question

Business

Royce Gould

7 May, 06:32

A famous quarterback just signed a $16.5 million contract providing $3.3 million a year for 5 years. A less famous receiver signed a $15.5 million 5-year contract providing $4 million now and $2.3 million a year for 5 years. The interest rate is 10%. a. What is the PV of the quarterback's contract? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) b. What is the PV of the receiver's contract? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

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Answers (1)

Know the Answer?

Isabell Gibson · Answer 1

a. $12.51 million

b. $12.72 million

Explanation:

The computation of the present value is shown below

a. For quarterback's contract:

= Annual cash flows * PVIFA for 5 years at 10%

= $3.3 million * 3.7908

= $12.51 millions

Refer to the PVIFA table

b. For receivers's contract:

= Annual cash flows * PVIFA for 5 years at 10%

= $4 million + $2.3 million * 3.7908

= $12.72 millions

Refer to the PVIFA table