calculate the net present value to you if ronaldo left with 4 years remaining 3 year 406848

Net Present Value FIFA rules regarding player contracts are very interesting. If a player wishes to break his contract, the purchasing club must pay the player’s club four times the player’s annual salary multiplied by the number of years left on the contract. The player must pay 10 per cent of this amount personally, and the agent must also pay 10 per cent of the amount from his own pocket. Consider the footballer Cristiano Ronaldo, who was widely rumoured to be leaving Manchester United for Real Madrid during the summer of 2008 (he actually joined in the summer of 2009). At that time Ronaldo was earning €120,000 a week, and had four years of his contract with Manchester United left.

1. Calculate how much Ronaldo would have personally had to pay Manchester United if he left with 4 years remaining, 3 years remaining, 2 years remaining, and 1 year remaining.

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2. If the appropriate annualized discount rate is 8 per cent, what is the present value to Ronaldo of breaking his contract with 4, 3, 2, 1 and 0 years remaining?

3. Assume you are Ronaldo’s agent and can personally earn €5 million today from getting Ronaldo to sign a pre contract agreement to join Real Madrid in the future. Calculate the net present value to you if Ronaldo left with 4 years remaining, 3 years remaining, 2 years remaining, and 1 year remaining.