Nick Nohitter has been playing baseball since he was five years old and has always dreamed of playing in the big leagues
Posted: Wed Jul 06, 2022 6:27 pm
Nick Nohitter has been playing baseball since he was five yearsold and has always dreamed of playing in the big leagues. Lastseason, he was a starting pitcher for a double-A (AA)-levelbaseball team, the Dodge City Cowboys; last year, he was the firstrunner-up for the Minor League Player of the Year award. Using his96 mph fastball, an impeccable curve ball and slider, and areliable changeup pitch, he achieved a 16-3 win–loss record, anearned run average (ERA) of 2.98, and 146 strikeouts in 117.0innings pitched. He is also your best friend.
Two weeks ago, on his three-year anniversary with the team, Nickreceived the following email from his agent, Michael Make-d’Team,indicating that he is being called up to the El Paso Grandies, theCowboys’s corresponding Major League Baseball (MLB) team. Moreover,Nick’s contract is being revised to reflect his new status. Theemail describes the general terms and conditions of Nick’s revisedcontract.
From: Michael Make-d’Team
To: Nick Nohitter
Subject: New Team, New Contract Proposal
Nick,
Congratulations! You’ve been called up to the El Paso Grandies.Below are the offered terms and conditions of your new contract.After you review them and think about the offer, call me and we’lldiscuss your options. Congrats again!
In addition to the proposal offered by the Grandies, I’ve alsobeen able to secure the following endorsement opportunity:
A local car dealer has offered you a contract that will pay $750per month for two years. This contract is contingent on youraccepting the contract with the Grandies and will take effectimmediately upon signing your MLB contract. In return for thesepayments, you will participate in the dealer’s promotional events,such as signing autographs and allowing photographs asrequested.
I’ve also attached a worksheet that you can use to analyze thedeal. I’m in negotiations for the rest of the day, so let’s discussyour thoughts on the contract proposal tomorrow. I’m proud ofyou!
Take care,
Michael
Michael Make-d’Team
Sports Agent, R&R Talent Management Inc. | El Paso
Nick is so excited! According to Michael, the contract is worth$3,192,400—assuming receipt of all possible bonuses. Afterrereading the email twice and calling his family, Nick called youto review the terms of the contract and verify Michael’scalculations. After an extended conversation about what he’ll dowith his newfound wealth, you and Nick have agreed that any fundsreceived could be invested to earn 6.50%, compounded monthly.
Contract Evaluation Worksheet
Nick Nohitter's Contract Evaluation Worksheet
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1. Given your worksheet calculations, which of the followingstatements is accurate? Is Michael’s estimate of the value ofNick’s contract accurate on either a nominal or discountedbasis? Check all that apply.
It is appropriate and necessary to discount the endorsementcontract using the bank account’s effective annual interest ratebecause of differences in the timing of the compounding of the bankaccount and that of the payments on the endorsement contract.
It is appropriate and necessary to discount the performancebonus using the bank account’s effective annual interest ratebecause of differences in the timing of the compounding of the bankaccount and that of the payments for the performance bonus.
Michael’s estimate of the nominal value of Nick’s contract iscorrect.
Related Question: The local car dealer creating Nick'sendorsement opportunity can earn 6% (compounded quarterly) on hisdeposited funds. She would have to deposit
each quarter, starting exactly two years before the dayNick signs his contract, to fund her endorsement contract. [Note:The future value interest factor of 6% compounded quarterly foreight quarterly periods is 8.4328.]
Two weeks ago, on his three-year anniversary with the team, Nickreceived the following email from his agent, Michael Make-d’Team,indicating that he is being called up to the El Paso Grandies, theCowboys’s corresponding Major League Baseball (MLB) team. Moreover,Nick’s contract is being revised to reflect his new status. Theemail describes the general terms and conditions of Nick’s revisedcontract.
From: Michael Make-d’Team
To: Nick Nohitter
Subject: New Team, New Contract Proposal
Nick,
Congratulations! You’ve been called up to the El Paso Grandies.Below are the offered terms and conditions of your new contract.After you review them and think about the offer, call me and we’lldiscuss your options. Congrats again!
In addition to the proposal offered by the Grandies, I’ve alsobeen able to secure the following endorsement opportunity:
A local car dealer has offered you a contract that will pay $750per month for two years. This contract is contingent on youraccepting the contract with the Grandies and will take effectimmediately upon signing your MLB contract. In return for thesepayments, you will participate in the dealer’s promotional events,such as signing autographs and allowing photographs asrequested.
I’ve also attached a worksheet that you can use to analyze thedeal. I’m in negotiations for the rest of the day, so let’s discussyour thoughts on the contract proposal tomorrow. I’m proud ofyou!
Take care,
Michael
Michael Make-d’Team
Sports Agent, R&R Talent Management Inc. | El Paso
Nick is so excited! According to Michael, the contract is worth$3,192,400—assuming receipt of all possible bonuses. Afterrereading the email twice and calling his family, Nick called youto review the terms of the contract and verify Michael’scalculations. After an extended conversation about what he’ll dowith his newfound wealth, you and Nick have agreed that any fundsreceived could be invested to earn 6.50%, compounded monthly.
Contract Evaluation Worksheet
Nick Nohitter's Contract Evaluation Worksheet
A
B
C
D
E
F
1. Given your worksheet calculations, which of the followingstatements is accurate? Is Michael’s estimate of the value ofNick’s contract accurate on either a nominal or discountedbasis? Check all that apply.
It is appropriate and necessary to discount the endorsementcontract using the bank account’s effective annual interest ratebecause of differences in the timing of the compounding of the bankaccount and that of the payments on the endorsement contract.
It is appropriate and necessary to discount the performancebonus using the bank account’s effective annual interest ratebecause of differences in the timing of the compounding of the bankaccount and that of the payments for the performance bonus.
Michael’s estimate of the nominal value of Nick’s contract iscorrect.
Related Question: The local car dealer creating Nick'sendorsement opportunity can earn 6% (compounded quarterly) on hisdeposited funds. She would have to deposit
each quarter, starting exactly two years before the dayNick signs his contract, to fund her endorsement contract. [Note:The future value interest factor of 6% compounded quarterly foreight quarterly periods is 8.4328.]