An All-Pro defensive lineman is in contract negotiations. The team has offered t

Question

An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure: 0 $5,900,000 1 $4,500,000 2 $5,000,000 3 $5,500,000 4 $6,900,000 5 $7,600,000 6 $8,400,000 ed es All salaries are to be paid in lump sums. The player has asked you as his agent to renegotiate the terms. He wants a $9.4 million signing bonus payable today and a contract value increase of $1,400,000. He also wants an equal salary paid every three months, with the first paycheck three months from now. If the interest rate is 4.9 percent compounded daily, what is the amount of his quarterly check? Assume 365 days in a year. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Quarterly check amount

Explanation / Answer

Effective Rate = (1+4.9%/365)^365 -1 5.02% PV of the current contract offer Time Salary PV@5.02% Present Value 0 $5,900,000.00 1.0000 $5,900,000.00 1 $4,500,000.00 0.9522 $4,284,829.18 2 $5,000,000.00 0.9067 $4,533,274.34 3 $5,500,000.00 0.8633 $4,748,163.72 4 $6,900,000.00 0.8220 $5,671,959.03 5 $7,600,000.00 0.7827 $5,948,652.31 6 $8,400,000.00 0.7453 $6,260,446.06 Present Value $37,347,324.64 The player wants the contract increased in value by $1,400,000, so the PV of the new contract will be: PV of New Contract = ($37,347,324.64 + $1,400,000) $38,747,324.64 PV of the future quarterly paychecks = $38,747,324.64 - $9,400,000 $29,347,324.64 Effective Quarterly Rate = [(1+4.9%/365)^91.25 ]-1 1.23% The quarterly payments PV of the future quarterly paychecks = $38,747,324.64 - $9,400,000 $29,347,324.64 Rate 1.23% Period = 6 x 4 24 Quarterly Payments = PMT(1.23%,24,-$29,347,324.64) $1,420,018.79

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