Bill Clinton reportedly was paid $9.5 million to write hisbook My Life. The book took three years to write. In thetime he spent writing, Clinton could have been paid tomake speeches. Given his popularity, assume that hecould earn $8.3 million per year (paid at the end of theyear) speaking instead of writing. Assume his cost ofcapital is 9.3 % 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 expectedto generate royalties of $5.1 million in the first year (paid at the end of the year) and these royalties areexpected to decrease at a rate of 30% per year inperpetuity. What is the NPV of the book with the royaltypayments?

Given the information:Here is the cash flow timeline representation. The timeline starts at Year 0…

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

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Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $49,000. In return, for the next year the firm would have access to eight hours of her time every month. As an alternative payment arrangement, the firm would pay Professor Smith's hourly rate for the eight hours each month. Smith's rate is $550 per hour and her opportunity cost of capital is 16% 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 16%.) What about the NPV rule? The annual IRR is 14.96 %. (Round to two decimal places.) The IRR rule advises: (Select the best choice below.) A. Since the IRR is less than the cost of capital, 16%, Smith should turn down this opportunity. OB. With an IRR of 16% and with Smith's cost of capital at 14.96%, according to the IRR rule, she should reject this opportunity. C. Since the IRR is less than the cost of capital, 16%,…

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