El-Firas, a professional football player is negotiating with YNWA United regarding his contract. His opportunity cost is
Question:
El-Firas, a professional football player is negotiating with YNWA United regarding his contract. His opportunity cost is 10%. He has been offered three possible 4-year contracts. Payments are guaranteed, and they would be made at the end of each year. Terms of each contracts are as follows:)
Kontrak/Contract 1 Kontrak/Contract 2 Kontrak/Contract 3
Tahun 1 RM500,000 RM400,000 RM800,000
Tahun 2 RM500,000 RM500,000 RM300,000
Tahun 3 RM500,000 RM600,000 RM300,000
Tahun 4 RM500,000 RM700,000 RM300,000
(a) As an advisor, which contract do you recommend for him to accept? Show your calculations. (As adviser, which contract would you recommend that he accept? Show your working.) (8 marks)
(b) Suppose you borrow RM400,000 at the rate of 6% and have to repay in the same 7 installments at the end of each of the next 7 years. How much which you will still owe at the end of the first year, after you make first payment? (Suppose you have borrowed RM400,000 at a rate of 6% and must repay it in 7 equal installments at the end of each of the next 7 years. How much would you still owe at the end of the first year, after you have made the first payment?)