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    Northwest Florida State College
    Jun-1992 - May-1997

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    Northwest Florida State College,
    Aug-2006 - Nov-2015

Category > Economics Posted 08 May 2017 My Price 9.00

A local newspaper carried the following story

A local newspaper carried the following story:

 

Texas Cowboys wide receiver John Young will earn either $11,406,000 over 12 years or $8,600,000 over 6 years. Young must declare which plan he prefers. The $11 million package is deferred through the year 2017, while the non deferred arrangement ends after the 2011 season. Regardless of which plan is chosen, Young will be playing through the 2011 season. Here are the details of the two plans:

 

Deferred Plan

 

Nondeferred Plan

 

2006

$2,000,000

2006

$2,000,000

2007

566,000

2007

900,000

2008

920,000

2008

1,000,000

2009

930,000

2009

1,225,000

2010

740,000

2010

1,500,000

2011

740,000

2011

1,975,000

2012

740,000

 

 

2013

790,000

 

 

2014

540,000

 

 

2015

1,040,000

 

 

2016

1,140,000

 

 

2017

1,260,000

 

 

Total

$11,406,000

Total

$8,600,000

          (a) As it happened, Young ended up with the nondeferred plan. In retrospect, if Young’s interest rate were 6%, did he make a wise decision in 2006?

 

(b) At what interest rate would the two plans be economically equivalent?

Answers

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Status NEW Posted 08 May 2017 11:05 AM My Price 9.00

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