In 2000, a star major-league baseball player signed a 10-year, $261 million doll

Question

In 2000, a star major-league baseball player signed a 10-year, $261 million dollar contract with the Texas Rangers. Assume that equal payments would have been made each year to this individual and that the owner’s cost of capital (discount rate) was 9% at the time the contract was signed. What is the present value cost of the contract to the owners as of January 1, 2000, the date the contract was signed, in each of the following independent situations? (Use Table 1 and Table 2.) (Round your answers to the nearest whole dollar amount and not in millions.)

Required:

The baseball player received the first payment on December 31, 2000.

          PV = ?

The baseball player received the first payment on January 1, 2000, the date the contract was signed.

          PV = ?

Assuming the owner is in the 41% income tax bracket, calculate your answer for requirement 1.

          PV = ?

In 2000, a star major-league baseball player signed a 10-year, $261 million dollar contract with the Texas Rangers. Assume that equal payments would have been made each year to this individual and that the owner’s cost of capital (discount rate) was 9% at the time the contract was signed. What is the present value cost of the contract to the owners as of January 1, 2000, the date the contract was signed, in each of the following independent situations? (Use Table 1 and Table 2.) (Round your answers to the nearest whole dollar amount and not in millions.)

Explanation / Answer

1. Present value of the contract to the owners = Annual payment x PVA9%,10

= $26,100,000 x 6.41766

= $167,500,926

2. Present value of the contract to the owners = Annual payment x PVAD9%,10

= $26,100,000 x 6.99525

= $182,576,025

3. Present value of the contract to the owners (net of tax) = $167,500,926 x (100% - Tax rate)

= $167,500,926 x (100% - 41%)

= $98,825,546

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.