The athlete who gets the best deal. Present value refers to the current worth of the future cash inflows after discounting with a discount rate. If the length of the period of the investment increases, then the present value of the investment decreases. Time value of money implies that the cash in hand at present has a higher value than the cash receipt promised in the future. Hence, a person needs more money in the future to buy the same product at present. Given situation: Two athletes sign a ten-year contract for $80 million, where they were told that either $80 million would be paid in 10 equal installments or the same amount in 10 installments with a maximization of 5% for a year.

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Chapter 4, Problem 3CQ

Summary Introduction

To identify: The athlete who gets the best deal.

Present value refers to the current worth of the future cash inflows after discounting with a discount rate. If the length of the period of the investment increases, then the present value of the investment decreases.

Time value of money implies that the cash in hand at present has a higher value than the cash receipt promised in the future. Hence, a person needs more money in the future to buy the same product at present.

Given situation:

Two athletes sign a ten-year contract for $80 million, where they were told that either $80 million would be paid in 10 equal installments or the same amount in 10 installments with a maximization of 5% for a year.

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