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Question: aandnbspandnbspandnbspandnbspandnbsp a professional footy player and his agent are evaluating...

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a)      A professional footy player and his agent are evaluating three contract options to play in the Australian Football League (AFL). Each option offers a signing bonus and a series of payments over the life of the contract. The player uses 7.25% rate of return (compounded annually) to evaluate the options.

Year

Cash flow

Richmond Football Club

Hawthorn Football Club

Collingwood Football Club

0

signing bonus

$3,500,000

$3,500,000

$3,500,000

1

Annual Salary

$700,000

$850,000

$775,000

2

Annual Salary

$750,000

$800,000

$775,000

3

Annual Salary

$800,000

$750,000

$775,000

4

Annual Salary

$850,000

$700,000

$775,000

 

            (i)        Using the information provided above, which contract should be chosen? (Show your calculations).

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