Michael Received a Professional Baseball Contract Paying $7,000,000 for 5

question 44

Essay

Michael received a professional baseball contract paying $7,000,000 for 5 years,Bert received a two-year contract for $16,000,000 per year.For purposes of calculations,treat these contracts as ordinary annuities.What are the present values of each contract if we assume a discount rate of 6%? It is not clear that the higher present value is the preferred contract in this situation.What other factors might you consider when determining which contract has greater value?

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