Aalesund Fotballklubb is a Norwegian football team with a long tradition of winning. However, the last three
Question:
Aalesund Fotballklubb is a Norwegian football team with a long tradition of winning. However, the last three years have been traumatic. The team has not won a major championship, and attendance at games has dropped considerably. Norsk Fiskevær AS is Aalesund Fotballklubb’s major corporate sponsor. Sverre Aspelund, the president of Norsk Fiskevær, is also the president of Aalesund Fotballklubb. Sverre proposes that the team purchase the services of Brazilian star, Monteiro. Monteiro would create great excitement for Aalesund Fotballklubb’s fans and sponsors.
Monteiro’s agent notifies Aspelund that terms for the superstar’s signing with Aalesund Fotballklubb are a bonus of NOK 3 million payable now (start of 2022) plus the following fouryear contract (assume all amounts are in millions and are paid at the end of each year):
Aspelund believes that a 12% required rate of return is appropriate for investments by Aalesund Fotballklubb.
Required
1 For Monteiro’s proposed four-year contract, calculate
(a) the net present value, and
(b) the payback period.
2 What other factors should Aspelund consider when deciding whether to sign Monteiro the four-year contract?
Step by Step Answer:
Management And Cost Accounting
ISBN: 9781292436029
8th Edition
Authors: Alnoor Bhimani, Srikant Datar, Charles Horngren, Madhav Rajan