Problem 9-1 Present Value Analysis James Hardy recently rejected a five-year, $20,000,000 contract with the Vancouver Seals hockey team, The contract amount consisted of a signing bonus and equal annual payments as follows: Contract amount $ 20,000,000 Signing bonus 7,500,000 Annual payments 2,500,000 To sweeten the deal. the president of player personnel for the Seals has now offered a contract amount consisting of a signing bonus and payments which increase annually with a balloon payment at the end of five years as follows: Contract amount $ 22,000,000 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 Required Suppose you are Hardy's agent and you wish to evaluate the rst contract using a required rate of return of 15%. Calculate the value of the original contract using factors from the interest tables and separately, using Excel PV function. Value of original contract: Time- Cash Flow Factor Total 0 $ 7,500,000 X 1-0000 = $ 7,500,000 1 5 2,500,000 x 3.3522 = 8,380,500 $ 15,880,500