Question

Stephen Curry signed a deal with Under Armour, where UA will pay Curry $4M every year, starting from 1/1/2015, for 5 years. UA expects to make $2M, $5M, $10M, $20M and $30M profit from Curry's brand for the 5 years. Suppose the profits are earned on the first day of each year from 2016 to 2020. The discount rate is 10% per year. What was the NPV of this contract at the time of 1/1/2015?

Answer 1

The cash flows will be as follows

	Year	Payment for brand	Profits	Cash flows
1/1/2015	0	-4		-4
1/1/2016	1	-4	2	-2
1/1/2017	2	-4	5	1
1/1/2018	3	-4	10	6
1/1/2019	4	-4	20	16
1/1/2020	5		30	30

NPV as on 1/1/2015 = CF0+ sum of discounted values of cash flows

= -4 -2/1.1^1 + 1/1.1^2+ 6/1.1^3+ 16/1.1^4 + 30/1.1^5

=$29.07 million