A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 7%. He has been offered three possible 4-year contracts. Payments are guaranteed, and they would be made at the end of each year. Terms of each contract are as follows: As his adviser, which contract would you recommend that he accept? Contract A Contract B Contract C Pick any contract!Year1234Contract A$1,200,000$1,250,000$1,250,000$1,000,000Contract B$500,000$750,000$750,000$3,000,000Contract C$1,500,000$1,500,000$750,000$750,000 Solution Presnt vaue of cash flows of contarct A=1,200,000*0.9346+1,250,000*0.8734+1,250,000*0.8163+1,000,000*0.7629 =$3,996,561 Presnt vaue of cash flows of contarct B=500,000*0.9346+750,000*0.8734+750,000*0.8163+3,000,000*0.7629 =$4,023,278 Presnt vaue of cash flows of contarct C=1,500,000*0.9346+1,500,000*0.8734+750,000*0.8163+750,000*0.7629 =$3,896,422 contract C is preferable.

1. A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 7%. He has
been offered three possible 4-year contracts. Payments are guaranteed, and they would be made
at the end of each year. Terms of each contract are as follows:
As his adviser, which contract would you recommend that he accept?
Contract A
Contract B
Contract C
Pick any contract!Year1234Contract A$1,200,000$1,250,000$1,250,000$1,000,000Contract
B$500,000$750,000$750,000$3,000,000Contract C$1,500,000$1,500,000$750,000$750,000
Solution
Presnt vaue of cash flows of contarct
A=1,200,000*0.9346+1,250,000*0.8734+1,250,000*0.8163+1,000,000*0.7629
=$3,996,561
Presnt vaue of cash flows of contarct
B=500,000*0.9346+750,000*0.8734+750,000*0.8163+3,000,000*0.7629
=$4,023,278
Presnt vaue of cash flows of contarct
C=1,500,000*0.9346+1,500,000*0.8734+750,000*0.8163+750,000*0.7629
=$3,896,422
contract C is preferable