Recently, Matt Ryan, an NFL quarterback, agreed to a five-year. $103.75 million

Question

Recently, Matt Ryan, an NFL quarterback, agreed to a five-year. $103.75 million contract extension with the Atlanta Falcons, which made him one of the highest-paid players in professional football history. The contract consisted of a $30 million signing bonus and average annual salary of $20.75 million. The $30 million signing bonus was pro-rated over the course of the contract, in such that $2 million was paid upfront and remaining balance over the five-year contract period. The detail breakdown of the contract is as follows: How much was the quarterback's contract actually worth at the time of signing (year 2013)? Assume that his interest rate is 6%. For the signing bonus portion, suppose that the quarterback was allowed to take either the pro-rated payment option as just described, or a lump-sum payment option in the amount of $25 million at the time he signed the contract. Should he have taken the lump-sum option instead of the pro-rated one?

Explanation / Answer

Year Base Signing Bonus Total PVF @ 6% Present Value 0 2013 $        2,000,000 $      7,600,000 $    9,600,000 1 $      9,600,000 1 2014 $        9,500,000 $      5,600,000 $ 15,100,000 0.943396226 $    14,245,283 2 2015 $      11,500,000 $      5,600,000 $ 17,100,000 0.88999644 $    15,218,939 3 2016 $      15,750,000 $      5,600,000 $ 21,350,000 0.839619283 $    17,925,872 4 2017 $      15,750,000 $      5,600,000 $ 21,350,000 0.792093663 $    16,911,200 5 2018 $      19,250,000 $ 19,250,000 0.747258173 $    14,384,720 $    88,286,013 Actual Worth Year Base Signing Bonus Total PVF @ 6% Present Value 0 2013 $        2,000,000 $    25,000,000 $ 27,000,000 1 $    27,000,000 1 2014 $        9,500,000 $    9,500,000 0.943396226 $      8,962,264 2 2015 $      11,500,000 $ 11,500,000 0.88999644 $    10,234,959 3 2016 $      15,750,000 $ 15,750,000 0.839619283 $    13,224,004 4 2017 $      15,750,000 $ 15,750,000 0.792093663 $    12,475,475 5 2018 $      19,250,000 $ 19,250,000 0.747258173 $    14,384,720 $    86,281,422 Actual Worth Conclusion: No He should not opt for lump sum

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