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marshall27 [118]
3 years ago
15

Suppose 2 athletes sign 10-year contracts for $80 million. In one case, we're told that the $80 million will be paid in 10 equal

instalments. In the other case, we're told that the $80 million will be paid in 10 instalments, but the instalments will increase by 5% per year. Who got a better deal and why?
Business
1 answer:
maxonik [38]3 years ago
4 0

Answer:

player 2 is signing a better contract

Explanation:

the present value of an annuity (player 1) = annual payment x annuity factor

assuming that the interest rate is 10%

present value = $10 million x 6.1446 (PV annuity factor, 10%, 10 periods) = $61.446 million

player 2's contract

the present value of a growing annuity = [payment / (i - g)] x {1 - [(1 + g) / (1 + i)]ⁿ} = [$10 / (10% - 5%)] x {1 - [(1 + 5%) / (1 + 10%)]¹⁰} = $200 x 0.372 = $74.398 million

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Answer:

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Explanation:

Two things are going on here

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The resulting effects are that price will decrease but the result in quantity is undetermined. This can be seen with the two examples attached. In both cases, the shifting of the curves from D0->D1 and S0->S1 results in lower prices. However, in one case the equilibrium quantity goes up and in the other goes up.

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3 years ago
The notes to a recent annual report from Weebok Corporation indicated that the company acquired another company, Sport Shoes, In
navik [9.2K]

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Explanation:

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3 0
3 years ago
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Answer:

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Explanation:

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