Reference no: EM133009892

James Hardy recently rejected a five-year, $20,000,000 contract with the Vancouver Seals hockey team. The contract amount consisted of a signing bonus and equal annual payments as follows:

Contract amount $ 20,000,000
Signing bonus 7,500,000
Annual payments 2,500,000

To sweeten the deal, the president of player personnel for the Seals has now offered a contract amount consisting of a signing bonus and payments which increase annually with a balloon payment at the end of five years as follows:

Contract amount $ 22,000,000
Year 1 2,500,000
Year 2 2,600,000
Year 3 2,700,000
Year 4 2,800,000
Year 5 2,900,000
Year 5 balloon payment 8,500,000

Required

Problem 1: Suppose you are Hardy's agent and you wish to evaluate the first contract using a required rate of return of 15%. Calculate the value of the original contract using factors from the interest tables and separately, using Excel PV function.