Your best friend from high school was just drafted by the Atlanta Braves. Your friend heard you are in a finance class and asks you to help him evaluate his new player contract options.
The first option is a three-year deal worth $4 million dollars. He will receive $1.5 million guaranteed as a signing bonus, and then three equal payments of $833,333.33 in years one, two, and three.
The second option is a five-year deal worth 5 million. There is no signing bonus, instead the money will be paid out equally over the course of the five years in $1,000,000 installments.
If the discount rate is 5%, which contract offer gives the most purchasing power(assuming the only thing your friend cares about is maximizing his contract payout)?
What other financial factors might you discuss with your friend about this contract, beyond strictly the total purchasing power? Briefly(1-2 sentences each) discuss two of the factors he should consider.