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Present Value of Annuities
Harvey Alexander, an all-league professional football player, has just declared free agency. Two teams, the San Francisco 49ers and the Dallas Cowboys, have made Harvey the following offers to obtain his services:
49ers: $1 million signing bonus payable immediately and an annual salary of $1.5 million for the five-year term of the contract. Cowboys: $2.5 million signing bonus payable immediately and an annual salary of $1 million for the five-year term of the contract. With both contracts, the annual salary will be paid in one lump sum at the end of the football season. Assume that Harvey can invest his money and earn an 8% annual return, which one should he choose? Please help! Thank you |
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