Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $48,000. 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 $535 per hour and her opportunity cost of capital is 15% 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 15%.) What about the NPV rule? The annual IRR is %. (Round to two decimal places.)
Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $48,000. 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 $535 per hour and her opportunity cost of capital is 15% 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 15%.) What about the NPV rule? The annual IRR is %. (Round to two decimal places.)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
ChapterB: Differential Calculus Techniques In Management
Section: Chapter Questions
Problem 7E
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Transcribed Image Text:Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $48,000. 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 $535 per hour and her opportunity cost of capital is 15% 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 15%.) What about the NPV rule?
The annual IRR is ☐ %. (Round to two decimal places.)
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