A famous quarterback just signed a contract for $14 million, providing $26 milli

Question

A famous quarterback just signed a contract for $14 million, providing $26 million a year for 4 years. A less famous receiver signed a contract for $13 0 million, providing $3 million now and S25 million a year for 4 years. The interest rate is 8% a. What is the PV of the quarterback's contract? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Present value b. What is the PV of the receiver's contract? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) value c. Who is better paid? O Quarterback O Receiver

Explanation / Answer

a In Millions Years Cashflow Discount factor @ 8% Present Value 1 $2.60 0.925925926 $2.41 2 $2.60 0.85733882 $2.23 3 $2.60 0.793832241 $2.06 4 $2.60 0.735029853 $1.91 $8.61 Present Value - $ 8.61 millions b In Millions Years Cashflow Discount factor @ 8% Present Value 0 $3 1 $3 1 $2.50 0.925925926 $2.31 2 $2.50 0.85733882 $2.14 3 $2.50 0.793832241 $1.98 4 $2.50 0.735029853 $1.84 $11.28 Present Value - $ 11.28 millions c Receiver is better paid in terms of PV

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