David Beckham, a prominent soccer player, is considering signing on for another two years with his current soccer club. The team managers, however, face a salary cap of $60 million for their team and have already contracted players for a total of $53 million. Beckham, used to earning $12 million a year, has been offered to play for $7 million this year and $16 million in his second year. The current interest rate is 6.5%. Should he agree to the contract?
What will be an ideal response?
No, Beckham should not agree to the contact. To compensate for the $5 million reduction in his salary, Beckham would need to earn $17.33 million in his second year [$12 million + ($5 million ? 1.065)] to maintain his usual $12 million a year.
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