Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $49,000. 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 12.6%. (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 $49,000. 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 12.6%. (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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am. 106.
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 $49,000. 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 12.6 %. (Round to two decimal places.)
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