5 Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for anupfront payment of $50,000. In return, for the next year the firm would have access to eight hours of her timeevery month. As an alternative payment arrangement, the firm would pay Professor Smith's hourly rate forthe eight hours each month. Smith's rate is $540 per hour and her opportunity cost of capital is 15% peryear. What does the IRR rule advise regarding the payment arrangement? (Hint: Find the monthly rate thatwill yield an effective annual rate of 15%.) What about the NPV rule?The annual IRR isThe IRR rule advises:.…..%. (Round to two decimal places.)(Select the best choice below.)OA. Since the IRR is less than the cost of capital, 15%, Smith should accept this opportunity.OB. Since the IRR is less than the cost of capital, 15%, Smith should turn down this opportunity.OC. With an IRR of 15% and with Smith's cost of capital at 6.94%, according to the IRR rule, she shouldreject this opportunity.OD. None of the above.The NPV is $(Round to the nearest dollar.)The NPV rule advises: (Select the best choice below.)A. Since the NPV is negative, the correct decision is to accept the upfront retainer.B. Even though the NPV is positive, the IRR is high enough to accept the upfront retainer.OC. Even though the NPV is negative, the IRR is below the cost of capital, so the correct decision is toreject the upfront payment.OD. None of the above.

The process through which an individual analyzes and evaluates the profitability of any alternative…

Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain 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 $540 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.) The IRR rule advises: (Select the best choice below.) A. Since the IRR is less than the cost of capital, 15%, Smith should accept this opportunity. OB. Since the IRR is less than the cost of capital, 15%, Smith should turn down this opportunity. OC. With an IRR of 15% and with Smith's cost of capital at 6.94%, according to the IRR rule, she should reject this opportunity. OD. None of the above. The NPV is $. (Round to the nearest dollar.) The NPV rule advises: (Select the best choice below.) O A. Since the NPV is negative, the correct decision is to accept the upfront retainer. OB. Even though the NPV is positive, the IRR is high enough to accept the upfront retainer. OC. Even though the NPV is negative, the IRR is below the cost of capital, so the correct decision is to reject the upfront payment. OD. None of the above.

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 22P