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Harvey Alexander, a professional football player, has just declared himself a free agent. Two teams, the...

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Accounting

Harvey Alexander, a professional football player, has justdeclared himself a free agent. Two teams, the Pittsburgh Steelersand the Miami Dolphins, have made Harvey the following offers toobtain his services:

Pittsburgh Steelers:

  • $1 million signing bonus payable immediately and an annualsalary of $1.5 million for the 5-year term of the contract.

Miami Dolphins:

  • $2.5 million signing bonus payable immediately and an annualsalary of $1 million for the 5-year term of the contract.

With both contracts, the annual salary will be paid in one lumpsum at the end of the football season.

You have been hired as a consultant to Harvey’s agent, PhilMarks, to evaluate the two contracts. State your recommendationincluding the method you used to reach your conclusion. Explain anycalculations with the use of Excel. Assume that Harvey has nopreference between the two teams and that the decision will bebased entirely on monetary considerations. Also assume that Harveycan invest his money and earn an 8% annualreturn.

Answer & Explanation Solved by verified expert
4.4 Ratings (645 Votes)
We need to calculate the present value of both the options at 8 for 5 years Pittsburgh Steelers Year    See Answer
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