James Hardy recently rejected a $20,000,000, five-year contract with the Vancouver Seals hockey team. The contract offer
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Year 1 ............................. $ 2,500,000
Year 2 ................................ 2,600,000
Year 3 ................................ 2,700,000
Year 4 ................................ 2,800,000
Year 5 ................................ 2,900,000
Year 5 balloon payment .......... 8,500,000
Total .............................. $22,000,000
Required
Suppose you are Hardy's agent and you wish to evaluate the two contracts using a required rate of return of 15 percent. In present value terms, how much better is the second contract?
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