Suppose Mats Sundin decided to make another comeback with the Toronto Maple Leafs in 2016. The Leafs offer him a two-year contract in January 2016 with the Following provisions:
a. $8 million signing bonus.
b. $10 million per year for two years.
c. Seven years of deferred payments of $3 million per year, starting at the end of year 2.
d. A games-played bonus provision that totals $2 million per year for the two years of the contract.
Assume that Mats achieved his bonus requirements both years and he signed the contract right away on January 1, 2016. Assume that cash flows are discounted at 12.5 percent. Ignore any taxes. Mats’ signing bonus was paid on the day the contract was signed. His salary and bonuses, other than the signing bonus, are paid at the end of the year. What was the PV of this contract in January when Mats signed it?

  • CreatedJune 17, 2015
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