Suppose you're an agent for a hockey player. The player is offered two contracts: A. A signing bonus of $3m (paid immediately), and then a salary of $6m after the first year, $7m after the second year and $8m after the third year B. A signing bonus of $6m (paid immediately), and then a salary of $5.5m after the first year, $6m after the second year and $6m after the third year If you believe that the interest rate is equal to 10%, which contract you would advise the player to sign? What if the interest rate is 5% instead?

Suppose you're an agent for a hockey player. The player is offered two contracts: A. A signing bonus of $3m (paid immediately), and then a salary of $6m after the first year, $7m after the second year and $8m after the third year B. A signing bonus of $6m (paid immediately), and then a salary of $5.5m after the first year, $6m after the second year and $6m after the third year If you believe that the interest rate is equal to 10%, which contract you would advise the player to sign? What if the interest rate is 5% instead?

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance

Section: Chapter Questions

Problem 4.8P

See similar textbooks

Similar questions

Three students have each saved $1,000.each has an investment opportunity in which he or she can invest upto $2,000.Here are the rates of return on the students investment project:a.If borrowing and lendind are prohibited,so each student uses only personal saving to finance his or her own investment project ,how much will each student have a year later when the project pays its return?b.Now suppose their school opens up a market for loanable funds in which students ran borrow and lend among themselves at an interest rate r.What would determine whether a student would choose to be a borrower or lender in this market?c.Among these three students,what would be the quantity of loanable funds supplied and quantity demanded at an interest rate of 7 percent?At 10percent?d.At what interest rate would the loanable funds market among these three students be in equilibrium?At this interest rate,which student(s) would borrow and which student(s) would lend?e.At the equilibrium interest rate,how…
Labour Economics Question The direct cost of a training module to be taken by an employee is $5000 and the opportunity cost involved is $7000. The expected incremental earnings to be received by the employee in the first 5 years are $3000, $3500, $4000, $4500 and $5000, respectively. Assuming the interest rate is 10%. Based on the concept of net present value, should the employee pursue this training module? Show all steps of calculations. Why opportunity cost not combine to same direct cost at calculated NPV?
1. Explain how the user market, the capital market, and the government interact to determine real estate value. 2. What are the three rights associated with real estate? List them in the first sentence. Then provide one sentence for each right explaining what that right means or give an example. 3. Explain the difference between transaction adjustments and property adjustments used in the sales comparison approach. Then give examples of at least two transactional adjustments and at least two examples of property adjustments.
a. There are two nation, UK and RSA and the combined capital stock is OA. b. In isolation, UK invests OA of capital for a yield of OC. The TP is OFGA and RSA invests O*A of capital for a yield of O*H. The TP is and the combined capital stock is OA. b. In isolation, UK invests 0A of capital for a yield of OC. The TP is OFGA and RSA invests O*A of capital for a yield of O*H. The TP is O*JMA © 87% 4 C. Since UK is capital abundant, the return on capital is low, Capital will move to where it can earn a higher return. In this case, to SA. Therefore, AB of capital moves from the UK to RSA d. With the transfer of capital to RSA, the total return on capital in UK increases from OCGA to ONRA total return on capital in RSA falls from O*HMA to O*TRA
Suppose Ford Motor Company issues a five year bond with a face value of 5,000 that pays an annual coupon payment of $150. What is the interest rate Ford is paying on the borrowed funds? Suppose the market interest rate rises from 3 to 4 a year after Ford issues the bonds. Will the value of the bond increase or decrease?
A mortgage 105m is a loan that a person makes to purchase a house. Table 19.11 provides a list of the mortgage interest rate for several different years and the rate of inflation for each of those years. In which years would it have been better to be a person borrowing money from a bank to buy a home? In which years would it have been better to be a bank lending money?
Investors sometimes fear that a high-risk investment is especially likely to have low returns. Is this fear true? Does a high risk mean the return must be low?
1. This theory is concerned on how to increase production efficiency to lower costs, raise profits, increase workers’ pay through increased productivity. 2. This is looking ahead by arranging a scheme for doing a project. 3. It pertains to the evaluation of the goods or services and assessing the packaging materials and salability of products. 4. These are the probable problems that an entrepreneur faces. 5. This approach is recommended by the Quantitative Management Theory to manage problems. 6. A management theory that the quality and quantity of work are affected by conditions workers are exposed to on and off the job. 7. It is about the process of acquiring and using human, fiscal, and material resources effectively to produce goods and services needed by people. 8. It refers to the obstacles that may prevent the business from attaining its financial target. 9. Keenly observe their environment for ideas that can be turned into profit. 10. This is defined by the continuous…
Workers are compensated by firms with benefits in addition to wages and salaries. The most prominent offered by many firms is health insurance. Suppose that in 2000, workers at one steel plant were paid $30 per hour and in addition received health benefits at the rate of $6 per hour. Also suppose that by 2010 workers at that plant were paid $31.50 per hour but received $13.5 in heakth insurance benefits. a. By what precentage did total compensation (wages plus benefits ) change at this plant from 2000 to 2010? Total compensation increased or decreased by________ percent? What was the approximate average annual percentage change in total compensation? b. By what percetage did wages change at this plant from 2000 to 2010? Wages increased or decreased by ______percent? What was the approximate average annual percentage in wages? c. If workers value a dollar of heath benefits as much as they value a dollar of wages, by what total percentage will they feel their incomes have risen over…
macroeconomics Q2: Three students have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000. Here are the rates of return on the students’ investment projects: Harry 5 percent Ron 8 percent Hermione 20 percent If borrowing and lending is prohibited, so each student uses only his or her saving to finance his or her own investment project, how much will each student have a year later when the project pays its return? Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate r. What would determine whether a student would choose to be a borrower or lender in this market? Among these three students, what would be the quantity of loanable funds supplied and quantity demanded at an interest rate of 7 percent? At 10 percent? At what interest rate would the loanable funds market among these three students be in equilibrium? At this interest rate, which…
Suppose you purchase a new house for $200 000, making a down payment of 5% and takingout a mortgage on the balance. What is the return on your investment in your house if one yearlater the price of your house increased by 10%? (show your work).A) 100%B) 150%C) 200%D) 220%
Elroy Harris is considering whether to buy a corn and soybean farm in Iowa. The farm will cost $800,000, and Xander will be able to pay this from profits his recently deceased mother made on the stock market and willed to him. He estimates that if he does not run the farm, and keeps his current job as an economic forecaster, he will be able to earn $40,000 a year. The prevailing interest rate is 9 percent. Xander’s only motive is to maximize his income. His accountant tells him the annual profit from the farm is likely to be depending on certain conditions and assuptions: Scenario i) $160,000 of accounting profit Scenario ii) $100,000 of accounting profit Scenario iii) $50,000 of accounting profit Using the concept of positive economic profit, which of the three scenarios would the economic opportunity cost justify him taking up farming and quitting his job as an economic forecast. Show your work and calculations