Tirade Owens, a professional athlete, currently has a contract that will pay him

Question

Tirade Owens, a professional athlete, currently has a contract that will pay him a large amount in the first year of his contract and smaller amounts thereafter. He and his agent have asked the team to restructure the contract. The team, though reluctant, obliged. Tirade and his agent came up with a counter offer. What are the present values of each of the contracts using a 14 percent discount rate?

Year Current Contract Team's Offer Counter offer

1 $7,980,110 $3,910,254 $5,187,072

2 $3,188,382 $3,347,801 $6,599,951

3 $3,016,923 $4,284,031 $4,042,677

4 $8,032,056 $17,268,920 $12,369,366

What is the present values of Current Contract using a 14 percent discount rate?

What is the present values of Team's Offer using a 14 percent discount rate?

What is the present values of Counteroffer using a 14 percent discount rate? (Round answer to 2 decimal places, e.g. 15.25.)

Which of the three contacts has the highest present value?

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Current Contract's Present Value = 7980110/(1+.14)^1 + 3188382/(1+.14)^2 + 3016923/(1+.14)^3 + 8032056/(1+.14)^4 = $16245411.94

Answer is $16245411.94.

Thanks.

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