Mary is in contract negotiations with a publishing house for her new novel. She has two options. She may be paid $100,000 up front, and receive royalties that are expected to total $26,000 at the end of each of the next five years. Alternatively, she can receive $200,000 up front and no royalties. Which of the following investment rules would indicate that she should take the former deal, given a discount rate of 8%? Rule 1: The Net Present Value rule Rule II: The Payback Rule with a payback period of two years Rule III: The internal rate of return (IRR) Rule

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
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Mary is in contract negotiations with a publishing house for her new novel. She has
two options. She may be paid $100,000 up front, and receive royalties that are
expected to total
$26,000 at the end of each of the next five years. Alternatively, she can receive
$200,000 up front and no royalties. Which of the following investment rules would
indicate that she should take the former deal, given a discount rate of 8%?
Rule I: The Net Present Value rule
Rule II: The Payback Rule with a payback period of two years
Rule III: The internal rate of return (IRR) Rule
Rule I only
Rule Ill only
O Rule I and II
None
Rule I, II, and III
Rule II only
Rule II and III
O Rule I and III
Transcribed Image Text:Mary is in contract negotiations with a publishing house for her new novel. She has two options. She may be paid $100,000 up front, and receive royalties that are expected to total $26,000 at the end of each of the next five years. Alternatively, she can receive $200,000 up front and no royalties. Which of the following investment rules would indicate that she should take the former deal, given a discount rate of 8%? Rule I: The Net Present Value rule Rule II: The Payback Rule with a payback period of two years Rule III: The internal rate of return (IRR) Rule Rule I only Rule Ill only O Rule I and II None Rule I, II, and III Rule II only Rule II and III O Rule I and III
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