James Hardy recently rejected a $20,000,000, five-year contract with the Vancouver Seals. The contract offer called for
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Year 1............. $ 3,000,000
Year 2............. 3,100,000
Year 3............. 3,200,000
Year 4............. 3,300,000
Year 5............. 3,400,000
Year 5 balloon payment...... 6,000,000
Total .............. $22,000,000
Required
Suppose you are Harry’s agent and you wish to evaluate the two contracts using a required rate of return of 12 percent. In present value terms, how much better is the second contract?
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