Bill Clinton reportedly was paid $15 million to write his book My Life. Suppose the book took three years to write. In the time he spent writing, Clinton could have been paid to make speeches. Given his popularity, assume that he could earn $8 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10% per year. a. What is the NPV of agreeing to write the book (ignoring any royalty payments)? b. Assume that, once the book is finished, it is expected to generate royalties of $5 million in the first year (paid at the end of the year) and these royalties are expected to decrease at a rate of 30% per year in perpetuity. What is the NPV of the book with the royalty payments?
Bill Clinton reportedly was paid $15 million to write his book My Life. Suppose the book took three years to write. In the time he spent writing, Clinton could have been paid to make speeches. Given his popularity, assume that he could earn $8 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10% per year. a. What is the NPV of agreeing to write the book (ignoring any royalty payments)? b. Assume that, once the book is finished, it is expected to generate royalties of $5 million in the first year (paid at the end of the year) and these royalties are expected to decrease at a rate of 30% per year in perpetuity. What is the NPV of the book with the royalty payments?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Bill Clinton reportedly was paid $15 million to write his book My Life. Suppose
the book took three years to write. In the time he spent writing, Clinton could have
been paid to make speeches. Given his popularity, assume that he could earn $8
million per year (paid at the end of the year) speaking instead of writing. Assume
his cost of capital is 10% per year.
a. What is the NPV of agreeing to write the book (ignoring any royalty payments)?
b. Assume that, once the book is finished, it is expected to generate royalties of $5
million in the first year (paid at the end of the year) and these royalties are expected
to decrease at a rate of 30% per year in perpetuity. What is the NPV of the book
with the royalty payments?
the book took three years to write. In the time he spent writing, Clinton could have
been paid to make speeches. Given his popularity, assume that he could earn $8
million per year (paid at the end of the year) speaking instead of writing. Assume
his cost of capital is 10% per year.
a. What is the NPV of agreeing to write the book (ignoring any royalty payments)?
b. Assume that, once the book is finished, it is expected to generate royalties of $5
million in the first year (paid at the end of the year) and these royalties are expected
to decrease at a rate of 30% per year in perpetuity. What is the NPV of the book
with the royalty payments?
c. How many IRRs are there in part (a) of Problem 3? Does the IRR rule give the right
answer in this case? How many IRRs are there in part (b) of Problem 3? Does the
IRR rule work in this case?
answer in this case? How many IRRs are there in part (b) of Problem 3? Does the
IRR rule work in this case?
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