A creative general manager has offered two different contracts to a vain quarter

Question

A creative general manager has offered two different contracts to a vain quarterback. The newspaper report the total dollars of the contract l, so contract A will pay a total of $2,567,500.00, while contract B will pay $3,028,150.00. The player will select contract B as it has more publicity. The team can earn 8.00% on their investments, so let’s determine the value of each contract
What is the present value of contract A? What is the present value of contract B ? Which would the team prefer to sign with the player?
CSePub A creative general manager has offered two different contracts to a CONTACTA CONTRACTB YEAR SALARY 0 $513,500.00 1 $513,500.00 2 $513,500.00 3 $513,500.00 4 $513,500.00 YEARSALARY 0 $300,425.00 1 $300,425.00 2 $809,100.00 3 $809,100.00 4 $809,100.00 The newspapers report the total dollars of the contract, so contract A more publicity. The team can earn 8.00% on their investments, so let What is the present value of contract A? Answer Format: Currency: Round to: 2 decimal places.

Explanation / Answer

Pv of contract A = $2,567,500.00- ( 513500+513500/1.08^1+513500/1.08^2+ 513500/1.08^3+ 513500/1.08^4)

= $2,567,500.00- 2214277.13

=$353,222.87

PV of contract B= $3,028,150- ( 300425+300425/1.08^1+809100/1.08^2+ 809100/1.08^3+ 809100/1.08^4)

=$518,878.54

Contract B is more beneficial.

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