Carl Hightop, a popular basketball player, has been offered a four-year salary deal. He can either accept $4,000,000 now or accept monthly amounts of $90,000 payable at the end of each month. If money can be invested at 3.4% compounded quarterly, which option is the better option for Carl and by how much?
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Carl Hightop, a popular basketball player, has been offered a four-year salary deal. He can either accept $4,000,000 now or accept monthly amounts of $90,000 payable at the end of each month. If money can be invested at 3.4% compounded quarterly, which option is the better option for Carl and by how much?
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- Now assume that it is several years later. The brothers are concerned about the firm’s current credit terms of net 30, which means that contractors buying building products from the firm are not offered a discount and are supposed to pay the full amount in 30 days. Gross sales are now running $1,000,000 a year, and 80% (by dollar volume) of the firm’s paying customers generally pay the full amount on Day 30; the other 20% pay, on average, on Day 40. Of the firm’s gross sales, 2% ends up as bad-debt losses. The brothers are now considering a change in the firm’s credit policy. The change would entail: (1) changing the credit terms to 2/10, net 20, (2) employing stricter credit standards before granting credit, and (3) enforcing collections with greater vigor than in the past. Thus, cash customers and those paying within 10 days would receive a 2% discount, but all others would have to pay the full amount after only 20 days. The brothers believe the discount would both attract additional customers and encourage some existing customers to purchase more from the firm—after all, the discount amounts to a price reduction. Of course, these customers would take the discount and hence would pay in only 10 days. The net expected result is for sales to increase to $1,100,000; for 60% of the paying customers to take the discount and pay on the 10th day; for 30% to pay the full amount on Day 20; for 10% to pay late on Day 30; and for bad-debt losses to fall from 2% to 1% of gross sales. The firm’s operating cost ratio will remain unchanged at 75%, and its cost of carrying receivables will remain unchanged at 12%. To begin the analysis, describe the four variables that make up a firm’s credit policy and explain how each of them affects sales and collections.Football coach Ira Blooper has just been fired as head coach at a large university. His buyout amount is $7.5 million, and Blooper will be repaid (as per his contract) in monthly installments over the next four years. If the interest rate is 1% per month, how much will Blooper receive each month?You are considering a job that offers a starting bonus of $2,500, paid immediately, and an annual salary of $44,000, $47,000, and $50,000 for each of the next 3 years, respectively. One year the offer expires, you will receive a gratuity of $20,000. The annual salary is paid at the end of each year. What is this offer worth today at a discount rate of 5.6 percent?
- Ms. Adams has received a job offer as an administrative assistant. Her base salary will be $50,000. She will receive her first annual salary payment one year from the day she begins to work. In addition, she will get an immediate $10,000 bonus for joining the company. Her salary will grow at 4 percent each year and each year she will receive a bonus equal to 10% of her salary. Ms. Adams is expected to work for 30 years. What is the present value of the offer if the appropriate discount rate is 10% (EAR)?The president of a growing engineering firm wishes to give each of 50 employees a holiday bonus. How much is needed to invest monthly for a year at 12% nominal interest rate, compounded quarterly, so that each employee will receive a $1,200 bonus?An employee is earning P 18,511 a month and he can only afford to purchase a car which will require a down payment of P 85,000 and a monthly amortization of 30% of his monthly salary. What would be the maximum cash value of a car he can purchase if the seller will agree to a down payment of P 82,000 and the balance payable in four years at 18% per year payable in monthly basis. The first payment will be due at the beginning of the first month.
- An employee is earning P 18,000 a month and he can only afford to purchase a car which will require a down payment of P 85,000 and a monthly amortization of 30% of his monthly salary. What would be the maximum cash value of a car he can purchase if the seller will agree to a down payment of P 85,000 and the balance payable in four years at 18% per year payable in monthly basis. The first payment will be due at the end of the first month.A man who is 30 years old at the start of the year, is considering getting an MFM degree. He currently earns $40,000 per year and expects to continue earning that amount for the rest of his working life (until age 65). He will give up his income for two years and will pay $20,000 per year in tuition, if he attends business school. In exchange, he expects a raise in his salary after completing his MFM. Assume that the post-graduation salary grows at a 5% annual rate and that the discount rate is 8%. What is the minimum expected starting salary after graduation for him that makes attending business school a positive-NPV investment? (Assuming that all cash flows happen at the end of each year.) Use Time Value of Money calculations.You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two different salary arrangements. You can have $66,000 per year for the next two years, or you can have $55,000 per year for the next two years, along with a $11,000 signing bonus today. The bonus is paid immediately, and the salary is paid in equal amounts at the end of each month. If the interest rate is 9 percent compounded monthly, what is the PV for both the options? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) PV Option 1 $______ Option 2 $_______
- Petrogazz convinced Mae Luna to play for their volleyball franchise for 3 seasons. They offered the player $1,000,000 in the 1st year, $2,500,000 in the 2nd year, and $3,000,000 in the 3rd year. Assuming end of year payments of the proceeds of the contract, how will we find the value of his contract today if Mae Luna has a discount rate of 12%, compounding semi-annually?You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They’ve offered you two different salary arrangements. You can have $70,000 per year for the next two years, or you can have $59,000 per year for the next two years, along with a $15,000 signing bonus today. The bonus is paid immediately, and the salary is paid in equal amounts at the end of each month. If the interest rate is 10 percent compounded monthly, what is the PV for both the options? PV Option 1$ Option 2$You are getting paid $8,000 a month, at the end of each working month. What is the present value of a year's salary knowing that the annual interest rate is 7% ? Your employer is also offering to pay you $4,000 bi-monthly (i.e. twice a month). What-are the present-values of a year of salary paid in these two different ways? Which one do you prefer if you want to maximize the present value of your payments? Round your final answers to the nearest cent