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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)
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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)
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
PVIFA
8. Answers might include:
Possible extra revenues from commercials, personal appearances
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
