In 2011, a running back signed a contract worth $69.1 million. The contract call

Question

In 2011, a running back signed a contract worth $69.1 million. The contract called for $12 million immediately and a salary of $3.9 million in 2011, $10.3 million in 2012, $12 million in 2013, $9.8 million in 2014 and 2015, and $11.3 million in 2016. If the appropriate interest rate is 9 percent, what kind of deal did the running back scamper off with? Assume all payments other than the first $12 million are paid at the end of the year.

In 2011, a running back signed a contract worth $69.1 million. The contract called for $12 million immediately and a salary of $3.9 million in 2011, $10.3 million in 2012, $12 million in 2013, $9.8 million in 2014 and 2015, and $11.3 million in 2016. If the appropriate interest rate is 9 percent, what kind of deal did the running back scamper off with? Assume all payments other than the first $12 million are paid at the end of the year.

Explanation / Answer

NPV = 12M + 3.9M / (1+0.09)^1 + 3.9M / (1+0.09)^1 + 10.3 / (1+0.09)^2 + 12 / (1+0.09)^3 + 9.8M / (1+0.09)^4 + 9.8M / (1+0.09)^5 + 11.3M / (1+0.09)^6

NPV = 53.5632028 Million

Present worth of the contract is 53.5632028 Million

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