Mike has received several offers from premier league football teams. Mike's offers are listed as follows:...
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Mike has received several offers from premier league football teams. Mike's offers are listed as follows: Offer 1 -$942,0000 immediate signing bonus - $850,000 at the of each year for the next five years Offer 2 - $221,000 immediate signing bonus -$100,000 at the end of years 1 through 4 - $150,000 at the end of years 5 through 10 - $1,000,000 at the end of years 11 through 40 Offer 3 - $1,008,400 immediate signing bonus -$500,000 at the end of year 1 - 1,000,000 at the end of year 2 - 1,500,000 at the end of year 3 -2,500,000 at the end of year 4 - $1,000,000 bonus for any year Mike is selected to play in the premier division (25 percent probability in each year) According to the information above, please answer the following questions. You have to show your work. For the questions below, please assume that the discount rate is 11% 1- What is the present value of all the offers today? 2- What will be the signing bonus worth today for all the contracts? 3- Which value from the TVM annuity table would you use to discount: a. Assuming the first contract: "$850,000 each year for the next five years." b. Assuming the second contract for "$150,000 at the end of years 5 through 10." 4- What is today's value of each section of all contracts? For example, the first contract is divided into two sections. The first is the signing bonus, and the second is the annuity paid until the end of the 5th year. 5- Which contract would you choose if you were Mike? Explain your reasoning 6- Will the contracts' present value be lower or higher if you increase the discount rate? Mike has received several offers from premier league football teams. Mike's offers are listed as follows: Offer 1 -$942,0000 immediate signing bonus - $850,000 at the of each year for the next five years Offer 2 - $221,000 immediate signing bonus -$100,000 at the end of years 1 through 4 - $150,000 at the end of years 5 through 10 - $1,000,000 at the end of years 11 through 40 Offer 3 - $1,008,400 immediate signing bonus -$500,000 at the end of year 1 - 1,000,000 at the end of year 2 - 1,500,000 at the end of year 3 -2,500,000 at the end of year 4 - $1,000,000 bonus for any year Mike is selected to play in the premier division (25 percent probability in each year) According to the information above, please answer the following questions. You have to show your work. For the questions below, please assume that the discount rate is 11% 1- What is the present value of all the offers today? 2- What will be the signing bonus worth today for all the contracts? 3- Which value from the TVM annuity table would you use to discount: a. Assuming the first contract: "$850,000 each year for the next five years." b. Assuming the second contract for "$150,000 at the end of years 5 through 10." 4- What is today's value of each section of all contracts? For example, the first contract is divided into two sections. The first is the signing bonus, and the second is the annuity paid until the end of the 5th year. 5- Which contract would you choose if you were Mike? Explain your reasoning 6- Will the contracts' present value be lower or higher if you increase the discount rate?
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