Use Excel Spreadsheet
You are negotiating an endorsement deal with two companies. Calloway is offering $75,000 paid in a lump sum in 4 years, whereas Puma is offering $12,000 paid every year for 5 years. You decide to apply a 5% discount rate to Calloway’s offer and a 6% discount rate to Puma.
Both companies are offering money in the future, so we should use the present value calculations. Calloway is offering a lump sum, paid in four years, so we need to use a present value of a single payment calculation. But Puma is offering money every year for five years, so we need to use the present value of an annuity for Puma. Don’t worry, the answers will be comparable even if we use a different type of calculation for each.
