Present Value and Sports Salaries Because of a salary cap, National Basketball Association teams are not allowed to exceed a certain annual limit in total player salaries. Suppose a team in the league had scheduled salaries exactly equal to their cap of $30 million. One of their star players was scheduled to receive S6 million next year. To free up money to pay a prize rookie, he agreed to defer S2 million of his salary for two years, by which time the salary cap will have been increased. His contract called for salary payments of S6 million next year, $7 million in the year after that, and $8 million in the final year. Instead, over the next three years, he will receive $4 million, S7 million, and $10 million. The star player's minimum desired rate of return is 12%.
1. Did the deferral of salary cost the player anything? If so, how much?