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PV of cash flow stream A rookie quarterback is negotiating his first NFL contract. His...

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Accounting

PV of cash flow stream

A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 7%. 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 as follows:

Contract 1 $2,500,000 $2,500,000 $2,500,000 $2,500,000
Contract 2 $2,500,000 $3,000,000 $4,000,000 $5,500,000
Contract 3 $6,000,000 $1,500,000 $1,500,000 $1,500,000

As his adviser, which contract would you recommend that he accept?

Select the correct answer.

Contract 3 gives the quarterback the highest future value; therefore, he should accept Contract 3.
Contract 3 gives the quarterback the highest present value; therefore, he should accept Contract 3.
Contract 2 gives the quarterback the highest present value; therefore, he should accept Contract 2.
Contract 1 gives the quarterback the highest present value; therefore, he should accept Contract 1.

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