Aalesund Fotballklubb is a Norwegian football team with a long tradition of winning. However, the…

Aalesund Fotballklubb is a Norwegian football team with a long tradition of winning. However, the last three years have been traumatic. The team has not won a major championship, and attendance at games has dropped considerably. Norsk Fiskevær AS is Aalesund Fotballklubb’s major corporate sponsor. Sverre Aspelund, the president of Norsk Fiskevær, is also the president of Aalesund Fotballklubb. Sverre proposes that the team purchase the services of Brazilian star, Monteiro. Monteiro would create great excitement for Aalesund Fotballklubb’s fans and sponsors. Monteiro’s agent notifies Aspelund that terms for the superstar’s signing with Aalesund Fotballklubb are a bonus of NOK 3 million payable now (start of 2018) plus the following four-year contract (assume all amounts are in millions and are paid at the end of each year): Aspelund’s initial reaction is one of horror. As president of Norsk Fiskevær, he has never earned more than NOK 800 000 a year. However, he swallows his pride and decides to examine the expected additions to Aalesund Fotballklubb’s cash inflows if Monteiro is signed for the four-year contract (assume all cash inflows are in millions and are received at the end of each year): Aspelund believes that a 12% required rate of return is appropriate for investments by Aalesund Fotballklubb. Required 1 For Monteiro’s proposed four-year contract, calculate (a) the net present value, and (b) the payback period. 2 What other factors should Aspelund consider when deciding whether to sign Monteiro the four-year contract?

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