question archive Janice, a player in the WNBA is in contract negotiations
Janice, a player in the WNBA is in contract negotiations
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Janice, a player in the WNBA is in contract negotiations. The team has offered the following salary structure: Time Salary 0 $ 7,100,000 1 $ 5,700,000 2 $ 6,200,000 3 $ 6,700,000 4 $ 8,100,000 5 $ 8,800,000 6 $ 9,600,000 All salaries are to be paid in lump sums. The player has asked you as her agent to renegotiate the terms. She wants a $10.6 million signing bonus payable today and a contract value increase of $2,600,000. She also wants an equal salary paid every three months, with the first paycheck three months from now. If the interest rate is 6.1 percent compounded daily, what is the amount of her quarterly check? Assume 365 days in a year. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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Interest rate = 6.1% compounded daily
Effective annual rate = (1 + 0.061/365)365 - 1 = 6.28935%
PV of the offered salary = 7,100,000 + 5,700,000 / (1 + 0.0628935) + 6,200,000 / (1 + 0.0628935)2 + 6,700,000 / (1 + 0.0628935)3 + 8,100,000 / (1 + 0.0628935)4 + 8,800,000 / (1 + 0.0628935)5??????? + 9,600,000 / (1 + 0.0628935)6??????? = $43,021,388.28
With an increase of $2,600,000, value of the contract = 43,021,338.28 + 2,600,000 = $45,621,338.28
Value of the contract after the signing bonus = 45,621,338.28 - 10,600,000 = $35,021,388.28
The original contract was for 6 years. If the payments were to be made quarterly, number of quarters = 6 x 4 = 24
Quarterly rate = (1 + 0.0628935)1/4 - 1 = 1.53656%
Quarterly Payment = PV x r / [1 - (1 + r)-n] = 35,021,388.28 x 0.0153656 / [1 - (1 + 0.0153656)-24] = $1,755,843.82
