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You have been asked to help your classmate, who was just offered a professional volleyball contract, with selecting her choice of contract offers. The first offer pays her $1 million dollars as a signing bonus and $150,000 for the next three years. The second offer pays her $500,000 as a signing bonus and provides an additional $500,000 for the next two years. The current market rate for contracts of this type is 9%. Which contract is better (25points)? By how much (25 points)? Note: to find the answer to this problem, compute the present value for each contract then find the dollar difference. Hint: find the pv factor and multiply by the future contract payments then add the signing bonus to find the present value of the contract.

Accounting Basics, Accounting

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