On December 13, 2007, Alex Rodriguez signed a 10-year, $275 million contract with the New York Yankees.
Question:
Assume that all payments in the contract are paid on January 2 of the respective years, beginning on January 2, 2008. The contract includes a $10 million signing bonus paid out as follows: $2 million on January 2, 2008; $1 million paid January 2 of each year 20092013; and $3 million on January 2, 2014. The salary is as follows (in millions):
Assume that the appropriate discount rate is 10%.
1. What was the present value of the contract on January 2, 2008?
2. How much present value (as of January 2, 2008) did Rodriguez lose by receiving the $10 million signing bonus over 5 years instead of immediately?
3. Do you agree that the contract was worth $275 million? Explain.
4. Give the journal entry to record his 2013 salary and bonus, assuming it is paid in cash along with any bonuses and that he does, in 2013, pass the home run record of WillieMays.
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Introduction to Financial Accounting
ISBN: 978-0133251036
11th edition
Authors: Charles Horngren, Gary Sundem, John Elliott, Donna Philbrick
Question Posted: