Martin Fillmore is a big football star who has been offered contracts by two different teams. The payments (in millions of dollars) he receives under the two contracts are listed below:
Team A Team B -
TimeCash FlowsCash Flows -
08.02.5
14.04.0
24.04.0
34.08.0
44.08.0
Fillmore is committed to accepting the contract that provides him with the highest net present value (NPV). At what discount rate would he be indifferent between the two contracts?
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A. B. C. D. E.C
First, find the differential CFs by subtracting Team A CFs from Team B CFs (or vice versa). Enter these into the cash flow register; then solve to find IRR/YR to get the discount rate for which he is indifferent between the two contracts, 11.35%.