Important information about Indifferent between the two contracts
Steve Hawke is a big football star who has been offered contracts by two different teams. The payments (in millions of dollars) under the two contracts are shown below:
Team A Team B
Year Cash Payment Cash Payment
0 $8.0 $2.5
1 4.0 4.0
2 4.0 4.0
3 4.0 8.0
4 4.0 8.0
Steve plans to accept the contract that provides him with the highest net present value. At what discount rate would he be indifferent between the two contracts?