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In January 2009, Iker Cassilas signed a contract to play for the Spanish Salsas that guaranteed him a minimum of $9,955,000. The guaranteed payments were $875,000 in 2009, $650,000 in 2010, $800,000 in 2011, $1 million in 2012, $1million in 2013, and $300,000 in 2014. In addition, the contract call for $5,330,000 in deferred money payable at the rate of $240,000 per year from 2014 to 2030 and then $125,000 a year from 2031 to 2040.

(a) If relevant rate of interest is 8 percent p.a. and all payments are made on 1 July each year, what would the present value of these guaranteed payments be on 1 January 2009?

(b) If he were to receive an equal salary at the end of each of the 5 years from 2009 to 2014, what would his equivalent annual salary be?

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Accounting Basics, Accounting

Category:- Accounting Basics
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