PROBLEM 9-1. Present Value Analysis [LO 1, 2] James Hardy recently rejected a $20,000,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an imme- diate signing bonus of $7,500,000 and annual payments of $2,500,000. To sweeten the deal, the president of player personnel for the Seals has now offered a $22,000,000, five-year contract. This contract calls for annual increases and a balloon payment at the end of 5 years. Year 1 $ 2,500,000 Year 2 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 Total $22,000,000 REQUIRED Suppose you are Hardy's agent and you wish to evaluate the two contracts using a required rate of return of 15 percent. In present value terms, how much better is the second contract