A baseball player is offered a 5-year contract that pays him the following amounts: Year 1: $1.1 million Year 2: $2.2 million Year 3: $1.5 million Year 4: $2.7 million Year 5: $2.8 million Under the terms of the agreement all payments are made at the end of each year. Instead of accepting the contract, the baseball player asks his agent to negotiate a contract that has a present value of $1 million more than that which has been offered. Moreover, the player wants to receive his payments in the form of a 5-year annuity due. All cash flows are discounted at 14 percent. If the team were to agree to the player's terms, what would be the player's annual salary (in millions of dollars)? Solution: $1.07
A baseball player is offered a 5-year contract that pays him the following amounts: Year 1: $1.1 million Year 2: $2.2 million Year 3: $1.5 million Year 4: $2.7 million Year 5: $2.8 million Under the terms of the agreement all payments are made at the end of each year. Instead of accepting the contract, the baseball player asks his agent to negotiate a contract that has a present value of $1 million more than that which has been offered. Moreover, the player wants to receive his payments in the form of a 5-year annuity due. All cash flows are discounted at 14 percent. If the team were to agree to the player's terms, what would be the player's annual salary (in millions of dollars)? Solution: $1.07
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Subject :- Accounting
Transcribed Image Text:7 Problem 21
8 A baseball player is offered a 5-year contract that pays him the following amounts:
9
0 Year 1: $1.1 million
1 Year 2: $2.2 million
2 Year 3:
$1.5 million
3 Year 4: $2.7 million
4 Year 5: $2.8 million
5
5 Under the terms of the agreement all payments are made at the end of each year.
3
3 Instead of accepting the contract, the baseball player asks his agent to negotiate
a contract that has a present value of $1 million more than that which has been
O offered. Moreover, the player wants to receive his payments in the form of a 5-year
annuity due. All cash flows are discounted at 14 percent. If the team were
to agree to the player's terms, what would be the player's annual salary (in millions
of dollars)?
Solution:
$1.97
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