None Bill Clinton reportedly was paid $10.5 million to write his book My Life. The book took three years to write. In the timehe 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 arethere in this problem? Does the IRR rule give the right answer in this case? (Note: Consider the upfront payment as apositive cash flow and the opportunity cost of missed speaking fees as negative cash flows.)The IRR is %. (Round to two decimal places.)

Given Data: YearCash Flows(in millions)010.51-8.42-8.43-8.4

Answered: he spent writing, Clinton could have…

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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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 eam $8.2 million 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 royalties of $4.9 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? CU 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 $-187849643). (Round to the nearest dollar)
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