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Algebraic time value of money equations

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Please use Excel financial functions or algebraic time value of money equations in your Excel cell formulas to answer these questions in your spreadsheet in order to receive credit for correct answers.

Should he stay or should he go?

Landon Lowman, the redshirt sophomore 20-year-old star quarterback of the university football team, is approached about skipping his last two years of college and entering the professional football draft. Landon expects that his football career will be over by the time he is 32 years old. Talent scouts estimate that Landon could receive a signing bonus of $5 million today, along with a five-year contract for $3 million per year (payable at the end of each year). They further estimate that he could negotiate a contract for $6 million per year for the remaining seven years of his career. The scouts believe, however, that Landon will be a much higher draft pick if he improves by playing two more years of college football. If he stays at the university, he is expected to receive a $10 million signing bonus in two years, along with a five-year contract for $4 million per year. After that, the scouts expect Landon to obtain a five-year contract for $7 million per year to take him into retirement. Assume that Landon can earn a 7% return over this time.

1. What is the present value today (when Landon is 20) of the QB's future expected NFL earnings if he enters the NFL now?

2. What is the present value today (when Landon is 20) of the QB's future expected NFL earnings if he finishes his last 2 years of college enters the NFL 2 years from now? 3. Should Landon stay in college or go to the NFL now?

Reference no: EM13839744

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