Assume that two athletes sign long-term contracts. Player A's contract pays out $90 million in...
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Assume that two athletes sign long-term contracts. Player A's contract pays out $90 million in 5 annual installments of $18 million per year and Player B's contract will pay him $100 million in installments which start at $5 million and increase 15% per year with the balance of $32 million due in a balloon payment in the final year.
Assuming a 5% discount rate, which athlete received the better deal, Player A or Player B?
What is the present value of Player A's contract?
What is the present value of Player B's contract?
Assuming a 10% discount rate, who has the better contract, Player A or Player B?
What's the difference in the present value of the contracts assuming a 10% discount rate?
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