Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $50,000. 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 $545 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? The annual IRR is 10.15 % (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 $50,000. 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 $545 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? The annual IRR is 10.15 % (Round to two decimal places.)
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 $50,000. 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 $545 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? The annual IRR is 10.15%. (Round to two decimal places.) Find the annual rate
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 $50,000. 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 $545 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?
The annual IRR is 10.15 % (Round to two decimal places.)
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