of capital is 9 7 per v 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 $8.2 million per year (paid at the end of the year) speaking instead of writing. Assume his cost 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 $5.3 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?

of capital is 9 7 per v 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 $8.2 million per year (paid at the end of the year) speaking instead of writing. Assume his cost 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 $5.3 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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am. 286.
A corporation is considering purchasing a machine that will save $150,000 per year before taxes. The cost of operating the machine (including maintenance) is $30,000 per year. The machine will be needed for five years, after which it will have a zero salvage value. MACRS depreciation will be used, assuming a three-year class life. The marginal income tax rate is 25%. If the firm wants 15% return on investment after taxes, how much can it afford to pay for this machine? Click the icon to view the MACRS depreciation schedules Click the icon to view the interest factors for discrete compounding when /- 15% per year. If the firm wants 15% return on investment after taxes, it can afford to pay thousand for this machine. (Round to one decimal place.)
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
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.)
You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs $4.3 million and would be depreciated straight-line to zero over four years. Because of radiation contamination, it will actually be completely valueless in four years. You can lease it for $1.275 million per year for four years. Assume that the tax rate is 21 percent. You can borrow at 8 percent before taxes. What are the cash flows from the lease from the lessor's viewpoint? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) Cash flows from the lessor's viewpoint
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)
123 Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. Campbell Manufacturing is considering the purchase of a new welding system. The cash benefits will be $480,000 per year. The system costs $1,550,000 and will last 10 years. Evee Cardenas is interested in investing in a women's specialty shop. The cost of the investment is $180,000. She estimates that the return from owning her own shop will be $55,000 per year. She estimates that the shop will have a useful life of 6 years. Barker Company calculated the NPV of a project and found it to be $63,900. The project's life was estimated to be 8 years. The required rate of return used for the NPV calculation was 10%. The project was expected to produce annual after-tax cash flows of $135,000. Required: 1. Compute the NPV for Campbell Manufacturing, assuming a discount rate of 12%. If required, round all present value calculations to the nearest dollar. Use the minus sign to indicate a…
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:
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)
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