978-1259277160 Case Case 11

Billy Wilson, All American Case 11

Time Value of Money

Purpose: The case provides the student with an interesting opportunity to examine the time value of

money. Pro football contractual issues are frequently in the news so the student will be dealing with a

contemporary situation. The student also will become familiar with deferred annuity payments.

Relation to Text: The case should follow Chapter 9.

Complexity: The case is moderately complex. It should require 1 hour.

Solutions

1. Contract offer number one

Immediate signing bonus………………………………………………………………………….

$ 900,000

$850,000 at the end of each year for the next five years

Contract offer number two

Immediate signing bonus…………………………………………………………………………. 200,000

Step 1

Step 2

Step 1

Step 2

PV = FV x PVIF (n = 10, i = 10%) (Ap.B)

written consent of McGraw-Hill Education.

Contract offer number three

Immediate signing bonus………………………………………………………………………….1,000,000

$500,000 at the end of year one

$1,000,000 at the end of year two

$1,500,000 at the end of year three

$2,500,000 at the end of year four

Bonus for Pro Bowl

PVA = $50,000 x 3.170……………………………………………………………………………. +158,500

2. Contract offer by the Canadian football team

Immediate signing bonus………………………………………………………………………….1,100,000

$2,000,000 at the end of each year for three years

3. The third contract proposal from the U.S. team ($5,273,000)

4. The second contract proposal from the U.S. team with the late cash flows would become

5. $5,273,000 Third contract proposal from the U.S. team

x .90

7. The value of an annuity:

A= PVA(n = 40, i = 10%) (Ap.D)

written consent of McGraw-Hill Education.

PVIFA

8. Answers might include:

Possible extra revenues from commercials, personal appearances

written consent of McGraw-Hill Education.