Problem 5-42 Calculating Present Values [LO 1] In 2015, a running back signed a
ID: 2790399 • Letter: P
Question
Problem 5-42 Calculating Present Values [LO 1]
In 2015, a running back signed a contract worth $58.8 million. The contract called for $10 million immediately and a salary of $3 million in 2015, $8.5 million in 2016, $10 million in 2017, $8.9 million in 2018 and 2019, and $9.5 million in 2020.
If the appropriate interest rate is 12 percent, what kind of deal did the running back scamper off with? Assume all payments other than the first $10 million are paid at the end of the contract year. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Present value $
Problem 5-42 Calculating Present Values [LO 1]
In 2015, a running back signed a contract worth $58.8 million. The contract called for $10 million immediately and a salary of $3 million in 2015, $8.5 million in 2016, $10 million in 2017, $8.9 million in 2018 and 2019, and $9.5 million in 2020.
If the appropriate interest rate is 12 percent, what kind of deal did the running back scamper off with? Assume all payments other than the first $10 million are paid at the end of the contract year. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Present value $
Explanation / Answer
Year
Cash flow
PV factor @ 12%
PV of cash flow
2015
10000000
10000000
2015
3000000
0.89286
2678571.429
2016
8500000
0.79719
6776147.959
2017
10000000
0.71178
7117802.478
2018
8900000
0.63552
5656110.898
2019
8900000
0.56743
5050099.016
2020
9500000
0.50663
4812995.651
PV
42091727.43
Year
Cash flow
PV factor @ 12%
PV of cash flow
2015
10000000
10000000
2015
3000000
0.89286
2678571.429
2016
8500000
0.79719
6776147.959
2017
10000000
0.71178
7117802.478
2018
8900000
0.63552
5656110.898
2019
8900000
0.56743
5050099.016
2020
9500000
0.50663
4812995.651
PV
42091727.43