Question

Landon Lowman, the 20-year-old star quarterback of the university football team, is approached about skipping his last two years of college and entering the professional football draft. Landon expects that his football career will be over by the time he is 32 years old. Talent scouts estimate that Landon could receive a signing bonus of $1 million today, along with a five-year contract for $3 million per year (payable at the end of each year). They further estimate that he could negotiate a contract for $5 million per year for the remaining seven years of his career. The scouts believe, however, that Landon will be a much higher draft pick if he improves by playing two more years of college football. If he stays at the university, he is expected to receive a $2 million signing bonus in two years, along with a five-year contract for $5 million per year. After that, the scouts expect Landon to obtain a five-year contract for $6 million per year to take him into retirement. Assume that Landon can earn a 10% return over this time. Should Landon stay or go?


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  • CreatedMarch 26, 2015
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