In 1984, Steve, a top college quarterback, signed a $40.4 million football contract structured as follows: for the years 1985 through 1990 inclusive, it paid him equal annual upfront payments which totaled $3.9 million. He also received an upfront signing bonus of $500K. The balance of the contract was paid out equally for 30 years (end of year) following the initial series of annual payments. On the other hand, Herschel, a star running back, signed a deal which paid him $18 million over four years as follows: 50% upfront with the balance of the contract paid out equally at the end of each year for the duration of the contract. Around the same time Lawrence, a bone crushing linebacker, received a 4-year, $24 million contract extension which included an upfront signing bonus of $6 million; $1.5 million/year in salary for the duration of the contract and a $300K payment at the beginning of each year for the next 40 years. Assume annual interest compounding, a discount rate of 10% and no taxation impact. Who got offered the better deal and why?

In 1984, Steve, a top college quarterback, signed a $40.4 million football contract structured as follows: for the years 1985 through 1990 inclusive, it paid him equal annual upfront payments which totaled $3.9 million. He also received an upfront signing bonus of $500K. The balance of the contract was paid out equally for 30 years (end of year) following the initial series of annual payments. On the other hand, Herschel, a star running back, signed a deal which paid him $18 million over four years as follows: 50% upfront with the balance of the contract paid out equally at the end of each year for the duration of the contract. Around the same time Lawrence, a bone crushing linebacker, received a 4-year, $24 million contract extension which included an upfront signing bonus of $6 million; $1.5 million/year in salary for the duration of the contract and a $300K payment at the beginning of each year for the next 40 years. Assume annual interest compounding, a discount rate of 10% and no taxation impact. Who got offered the better deal and why?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Maharlika Fund has a target capital structure that consists of 30% debt, 50% common equity, and 20% preferred stock. The prevailing tax rate is 30 percent. The company has projects in which it would like to invest with costs that total P2,000,000. TBI has a plowback ratio of 70 percent. Its net income for this year is P2,000,000. Maharlika Fund is keen on reinvesting this portion of its earning to the prospective projects. The forecasted dividend next year is P5, the current stock price is P80, and the growth rate of the company is 11%. If the company raises capital through a new equity issuance, the flotation costs are 10%. The cost of preferred stock is 9% and the after-tax cost of debt is 7%. What is the weighted average cost of capital? (Note: The format of the answer should be in % rounded off into two decimal places. Example: 19.05%, 16.90%)
Andrew just bought a new boat for $15,000 to use on the river near his home. He has taken delivery of the boat and agreed to the terms of the following loan: all principal and interest is due in 3 years (balloon loan), first-year annual interest (on the purchase price) is set at 5%, this is to be adjusted up 1.5% per year for each of the following years of the loan. (a) How much does Andrew owe to pay off the loan in 3 years? (b) If inflation is 4%, what is the payment in Year-0 dollars? Given the following data, calculate the present worth of the investment.
Khali owns two commercial buildings in downtown Sheridan. XYZ Company expressed an interest in one of the properties. They would like to rent the building for five years. Anxious to close the deal, Khali tells XYZ Company he will provide a significant discount on the first two years of rent, if XYZ Company pays in advance. XYZ Company agrees. On November 15, Khali receives XYZ’s security deposit in the amount of $2,500 that is refundable at the end of the lease period. A check in the amount of $30,000, covering the first two years of rent arrives on December 1, 2022. How much rental income must Khali include on his 2022 tax return?
A football player is offered a 5-year contract which pays him the following amounts: Year 1: $1.2 million Year 2: 1.6 million Year 3: 2.0 million Year 4: 2.4 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 football player asks his agent to negotiate a contract which 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 10 percent. If the team were to agree to the player's terms, what would be the player's annual salary (in millions of dollars)? $1.500 $1.659 $2.439 $1.989 None of the above
Luis has $170,000 in his retirement account at his present company. Because he is assuming a position with another company, Luis is planning to "roll over" his assets to a new account. Luis also plans to put $3000/quarter into the new account until his retirement 30 years from now. If the new account earns interest at the rate of 4.5%/year compounded quarterly, how much will Luis have in his account at the time of his retirement? (Round your answer to the nearest cent.)
esterday, Tom Brady, a professional football player, announced that after his retirement he'll move to the broadcasting booth as an Analyst for a reported $375 million, 10 year contract. Given the following, what's the least amount of money Tom would accept TODAY as opposed to getting $37.5 million a year for the next ten years. Tom retires today and begins his new job in-the-boothAll cash flows would occur at the end of each yearHe has a 5% DR.
Marites, a self-employed individual, is opening a retirement account at a bank. Her goal is to accumulate Php 1,000,000 in the account by the time she retires from work in 20 years' time. A local bank is willing to open a retirement account that pays 8% interest compounded annually throughout the 20 years. Marites expects that her annual income will increase by 6% yearly during her working career. She wishes to start with a deposit at the end of year 1 (A,) and increase the deposit at a rate of 6% each year thereafter. What should be the size of her first deposit (A,)? The first deposit will occur at the end of year 1, and the subsequent deposits will be made at the end of each year. The last deposit will be made at the end of year 20
2. At the beginning of his musical career, John Lemon took out a $3,750,000 5-year-loan to build a recording studio in his home. The loan had an interest rate of 10.35%. a. Suppose John decided to repay the loan in 5 years by making equal annual end-of year payments. Determine John’s annual loan payment and build an amortization table for the loan. b. How much will John pay in interest over the life of the loan if he makes equal annual end of year payments? c. Suppose instead, John decided to pay $750,000 in principal every year, as a fixed amount. Build an amortization table for the loan.
1. The home improvement center (HIC) has an employment contract with the newly hired CEO. The contract requires a lump-sum payment of 32.4 million dollars to be paid to the CEP upon the successful completion of her first five years of service. HIC, wants to set aside an equal amount of money at the end of each year to cover this anticipated cash outflow and will earn 7,25% on the funds. How much must HIC is set aside each year for this purpose? a) 7 270 433 b)5 227 064 c)5 668 987 d) 5 606 026 e) 6 778 958
Icahn Tackle just signed an $11.5 million, 4-year contract with an NFL team. He received a signing bonus of $2 million; $1.5 million at the end of year 1; $3 million at the end of year 2; $3.5 million at the end of year 3; and $1.5 million at the end of year 4. What is the present value of his contract if money can earn 4 percent per year?
Mr. Bill purchased a new house for 110,000. He paid 20,000 down and agreed to pay the rest over the next 30 years in 30 equal end of the year payments plus 12 percent compound interest on the unpaid balance. What will these equal payments be?

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS