Show All Work In 2005, soccer player David Beckham signed a c ontract reported t
ID: 2640883 • Letter: S
Question
Show All Work
In 2005, soccer player David Beckham
signed a
c
ontract reported to be worth $51
mill
ion.
The contract called for $2
million im
mediately and $10
mi
l
lion in 2006. The remaining $39
million was t
o be paid as $9
million in 2007, $ 7
mill
million in 2008, $6 million in 2009, $5
million in 2010, $4 million in 2011 and in 2012, $2 million in 2013, and $1 million in 2014
and 2015
. Assuming all t
he payments, except the first $2
million are paid a
t the end of each
year and the discount rate is 9%, wha
t kind of deal did the soccer player
snag?
8. W hat is the present value of the following set of cash flows at a 10% discount rate?
Year
1
2
3
4
Cash Flow
$600
$-600
$600
$-600
Explanation / Answer
Hi,
PFA the correct answer as follows:
Payment schedule for David Beckham
Present value = 2+10/(1+9%)^1+9/(1+9%)^1+7/(1+9%)^1+6/(1+9%)^1+5/(1+9%)^1+4/(1+9%)^1+4/(1+9%)^1+2/(1+9%)^1+1/(1+9%)^1+1/(1+9%)^1
=$38.11 million
Hence, the present value of allthe money is $38.11 million
-----------
Present value of cash flows = 600/(1+10%)^1-600/(1+10%)^2+600/(1+10%)^3-600/(1+10%)^4
=$90.57
Hence,the present value is $90.57
2005 2 2006 10 2007 9 2008 7 2009 6 2010 5 2011 4 2012 4 2013 2 2014 1 2015 1