Quote:
Originally Posted by Ryan Coke
The inflation number should only be added for years beyond tarasenkos deal in that case, not the whole term. 5% of 7 million is about 350k per year, for 1 year.
It doesn't add anywhere close to 3 million over the course of the contract.
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That's not how inflation works, run the discounted cash flows yourself. Essentially it's the difference between Tarasenko's year 0 payment vs the discounted value Gaudreau's year 8 payment. The years 1-7 net out, you're right, but then you're comparing 7.5M in year 0 vs 7.5M in year 8, which is worth 5.1M in year 0 dollars at 5%. So that's 2.4M difference, but you need to inflate that back out to the midpoint of the term (4 years) to normalize like the AAV. 2.4*1.05^4 = 3.5M.
Make sense?