Bill Clinton reportedly was paid $9.5 million to write his book My Life. The book took three years to write. In the time hespent writing, Clinton could have been paid to make speeches. Given his popularity, assume that he could earn $8.1million per year (paid at the end of the year) speaking instead of writing. If his cost of capital is 10.2% per year, then theNPV of agreeing to write the book (ignoring any royalty payments) is $10,572,787. How many IRRS are there inthis problem? Does the IRR rule give the right answer in this case? (Note: Consider the upfront payment as a positivecash flow and the opportunity cost of missed speaking fees as negative cash flows.)The IRR is%. (Round to two decimal places.)

IRR is the break-even rate at which the present value of cash flow is equal to the initial…

Answered: Bill Clinton reportedly was paid $9.5…

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

See similar textbooks

Similar questions

A firm paid $160,000 for a building site two years ago. It is now worth $200,000, and the firm’s plans have changed so that no building is planned. The firm estimates that the land will be worth $240,000 in four years. If the firm’s interest rate is 5%, what should it do?
Tiger Woods was paid a $10 million advance to write a book, which took him one year to write. Instead of writing, Woods could have earned $13 million playing golf during that year (paid at the end of the year, t=1). Assume that once his book is completed, it is expected to generate royalties of $5 million in the first year (paid at the end of the year, t=2) and these royalties are expected to decrease by 30% per year in perpetuity. Assuming that Woods' cost of capital is 10% and given these royalties payments, what is the net present value of Woods' book deal? Explain how you arrived at your answer. Select one: a. $9,545,455 O b. $8,512,397 O c. $33,181,818 O d. $21,363,636
Professor Brad has been offered the following opportunity: A law firm would like to retain his for an upfront payment of $50000. In return, for the next year the firm would have access to eight hours of his time every month. As an alternative payment arrangement, the firm would pay Professor Brad's hourly rate for the eight hours each month. Brad's rate is $535 per hour and her opportunity cost of capital is 13 % per year. What does the IRR rule advise regarding the payment arrangement? (Hint: Find the monthly rate that will yield an effective annual rate of 13 %.) What about the NPV rule? A. What is the IRR?
Bill Clinton reportedly was paid $10.5 million to write his book My Life. 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 $8.4 million per year (paid at the end of the year) speaking instead of writing. If his cost of capital is 9.9% per year, then the NPV of agreeing to write the book (ignoring any royalty payments) is $10,426,388. How many IRRs are there in this problem? Does the IRR rule give the right answer in this case? (Note: Consider the upfront payment as a positive cash flow and the opportunity cost of missed speaking fees as negative cash flows.) The IRR is %. (Round to two decimal places.)
K- Bill Clinton reportedly was paid $15.0 million to write his book My Life. 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 $8.7 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 9.7% 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 $4.8 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? CEELD a. What is the NPV of agreeing to write the book (ignoring any royalty payments)? The NPV of agreeing to write the book (ignoring any royalty payments) is 5 (Round to the nearest dollar)
Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $38,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $9,500. The grill will have no effect on revenues but will save Johnny's $19,000 in energy expenses. The tax rate is 30%. Required: What are the operating cash flows in each year? What are the total cash flows in each year? Assuming the discount rate is 12%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased? (round answers to 2 decimal places)
Bill Williams has the opportunity to invest in project A that costs $6,900today and promises to pay $2,100, $2,400, $2,400, $2,000 and $1,800over the next 5 years. Or, Bill can invest $6,900 in project B that promises to pay $1,500, $1,500, $1,500, $3,600 and $4,000 over the next 5 years. (Hint: For mixed stream cash inflows, calculate cumulative cash inflows on a year-to-year basis until the initial investment is recovered.) a. How long will it take for Bill to recoup his initial investment in project A? b. How long will it take for Bill to recoup his initial investment in project B? c. Using the payback period, which project should Bill choose? d. Do you see any problems with his choice?
Sarah Palin reportedly was paid a $11 million advance to write her book Going Rogue. The book took one year to write. In the time she spent writing, Palin could have been paid to give speeches and appear on TV news as a political commentator. Given her popularity, assume that she could have earned $8 million over the year (paid at the end of the year) she spent writing the book. Assume that once her 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 by 40% per year in perpetuity. Assuming that Palin's cost of capital is 10% and given these royalties payments, the NPV of Palin's book deal is closest to:
Brian owns a tanning salon that is expected to produce annual cash flows forever. The tanning salon is worth $636,600.00 and the cost of capital is 6.40%. Annual cash flows are expected with the first one due in one year and all subsequent ones growing annually by 2.30%. What is amount of the annual cash flow produced by the tanning salon in 1 year expected to be? O $55,384.20 (plus or minus $10) O $26,100.60 (plus or minus $10) O $155,268.29 (plus or minus $10) O $15,526,829.27 (plus or minus $10)
Bill Clinton reportedly was paid $15.0 million to write his book My Life. The book took three years to write in the time he spent writing, Clinton could have been paid to make speeches. Given his popularity, Kassume that he could eam $8.3 milion per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10.3% 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 royatios of $4 8 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? a. What is the NPV of agreeing to write the book (ignoring any royalty payments)? The NPV of agreeing to write the book (ignoring any royalty payments) is $(Round to the nearest dollar)

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS