[21playr]

Present Values. A famous quarterback just signed a $15 million contract providing $3 million a year for 5 years. A less famous receiver signed a $14 million 5-year contract providing $4 million now and $2 million a year for 5 years. Who is better paid? The interest rate is 10 percent.

[RickJ]

Unless I'm missing something, I don't see it as questionable.

Both are 5 years and both are 10%, so you can throw those out of the equation, leaving you with either 15mil or 14mil over 72 months.

I'll take the 15mil.

[CaptainForest]

Rick, you are not taking the time value of money into account. If I gave you $10 tomorrow, would that be a better deal or would you rather have $12 in 7 years?

Famous QB
Annuity
3 million/yr for 5 years @ 10%
NPV = $11,372,360.31

Not-so famous QB
Annuity
2 million/yr for 5 years @ 10% (plus 4million today)
NPV = $7,581,573.54 + $4,000,000
NPV = $11,581,573.54

Therefore, the not-so famous QB 14 million dollar deal is a better one.

[RickJ]

Aah. I misfigured - and used $4mil for the first year for the 2nd guy, when I should have used $6mil

[insert smilie knuckling self on the head]