Segment 3C Q1 Critical Thinking Questions: Part 1 Present Value [LO1] If you wer

Question

Segment 3C Q1

Critical Thinking Questions:

Part 1

Present Value [LO1] If you were an athlete negotiating a contract, would you want a big signing bonus payable immediately and smaller payments in the future, or vice versa? How about looking at it from the team's perspective?

Part 2

Present Value [LO1] Suppose two athletes sign 10-year contracts for $80 million. In one case, we’re told that the $80 million will be paid in 10 equal installments. In the other case, we’re told that the $80 million will be paid in 10 installments, but the installments will increase by 5 percent per year. Who got the better deal?

Explanation / Answer

Part 1

If money receivable is constant I would prefer immediate payment. because present value is high. Team wants the opposite.

Part 2

The better deal is the one with equal installments. Because his present value will be high. If money receivable is constant receiving earlier will have higher present value

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