week 3 dis 1 - Present Value Annuity = $1,000,000(annuity...

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Hey Phil, I have a recommendation on your client, Harvey Alexander’s two proposed contracts. The contract from the San Francisco 49ers, Harvey would be investing his money at an expected 8% annual return. Sounds great right? Based on the conclusions I came across, accept the San Francisco 49ers, this is the best decision on the two contracts. The Dallas cowboys have a present value of $6,492,710 and with the San Francisco 49ers he would have a present value of $6,898,065. Below I will show the calculations for the Dallas Cowboys first to better clarify the decision. Contract Offer Signing Bonus Annual Salary Term of Contract Annual Expected Return Dallas Cowboys $2,500,000 $1,000,000 5 years 8% Over a 5 year period the Ordinary Annuity of $1 is 3.99271
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Unformatted text preview: Present Value Annuity = $1,000,000 (annuity amount) x 3.99271 = $3,992,710 So therefore, PV = $2,500,000 (Signing bonus) + $3.992,710 (PVA) = $ 6,492,710 Finally, the calculations for the San Francisco 49ers is: Contract Offer Signing Bonus Annual Salary Term of Contract Annual Expected Return San Francisco 49ers $1,000,000 $1,500,000 5 years 8% Over a 5 year period the Ordinary Annuity of $1 is 3.99271 Present Value Annuity = $1,500,000 (annuity amount) x 3.99271 = $5,989,065 So therefore, PV = $1,000,000 (Signing bonus) + $5,989,065 (PVA) = $6,989,065 Thank you for choosing me to help you make the decision that is best for your client and I look forward to working with you again. Amanda Miles...
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