Contemporary Engineering Economics 6th Edition by Chan Park

تمرين 8

A professional football player has a contract on hand at the beginning of 2015 season. He will earn either $ 11,406,000 (deferred plan) over 12 years or $8,600,000 (non-deferred plan) over 6 years. He must declare which plan he prefers. The $11 million package is deferred through the year 2026, while the non-deferred arrangement ends after the 2020 season. Regardless of which plan is chosen, he will be playing through the 2020 season.
(a) Details of the two plans are given in Table 1. If his interest rate is 6%, which plan is more attractive
(b) At what interest rate would the two plans be economically equivalent
Table 1