Billy Wilson, All American?

Required
1 . Calculate the present value of the three contract proposals offered by the U.S. team. Factor in any probability considerations where appropriate.
2. Calculate the present value of the contract offered by the Canadian team. Factor in any probability considerations where appropriate.
3. Which of the four contract offers has the highest present value? What is the amount?
4. If the discount rate used were 7 percent instead of 10 percent, how might that change your answer? You do not need to do new calculations, merely indicate what the likely impact would be.
5. Returning to your answer for question 3, assume Billy Wilson’s agent will receive 10 percent of the present value of the contract as his fee. Also, the remaining 90 percent will be taxed at 33 percent. What is the after-tax value of the present value of the proceeds that Billy will receive?
6. If Billy and his agent think tax rates are likely to be higher in the future, how might that influence the decision?
7. Using the answer from question 3, how large an annuity could Billy Wilson pay himself for the next 40 years at 10 percent interest?

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