Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 7, Problem 5P
Bill Clinton reportedly was paid $15 million to write his book My Life. Suppose 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 earn $8 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10% 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 $5 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?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Bill Clinton reportedly was paid an advance of $10.0
million to write his book My Life. Suppose 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 earn $7.8million a year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10.2%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
$4.8
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?
Bill Clinton reportedly was paid $10 million to write his book My Life. Suppose 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 earn $8 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10% per year.
a). What is the NPV of agreeing to write the book (ignoring any royalty payments)?
PV of losing the speaking fees? _____
NPV of book deal? ______
b). Assume that, once the book is finished, it is expected to generate royalties of $5 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?
PV of perpetuity at year 3? _____
PV of perpetuity at year 0?_____
NPV of book deal?_____
Bill Clinton reportedly was paid an advance of $10.0 million to write his book My Life. Suppose 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 earn $7.6 million a year (paid at the end of the year) speaking instead of writing
Assume his cost of capital is 9.2% 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 $5.1 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?
a. What is the NPV of agreelng to write the book (ignoring any royalty payments)?
The NPV of agreeing to write the book is $ million. (Round to three decimal places.)
b. Assume that, once the book is finished, it is expected to generate royalties of…
Chapter 7 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 7.1 - Explain the NPV rule for stand-alone projects.Ch. 7.1 - What does the difference between the cost of...Ch. 7.2 - Prob. 1CCCh. 7.2 - If the IRR rule and the NPV rule lead to different...Ch. 7.3 - Can the payback rule reject projects that have...Ch. 7.3 - Prob. 2CCCh. 7.4 - For mutually exclusive projects, explain why...Ch. 7.4 - What is the incremental RR and what are its...Ch. 7.5 - Prob. 1CCCh. 7.5 - Prob. 2CC
Ch. 7 - Your brother wants to borrow 10,000 from you. He...Ch. 7 - You are considering investing in a start-up...Ch. 7 - You are considering opening a new plant. The plant...Ch. 7 - Your firm is considering the launch of a new...Ch. 7 - Bill Clinton reportedly was paid 15 million to...Ch. 7 - FastTrack Bikes, Inc. is thinking of developing a...Ch. 7 - OpenSeas, Inc. is evaluating the purchase of a new...Ch. 7 - You are CEO of Rivet Networks, maker of ultra-high...Ch. 7 - You are considering an investment in a clothes...Ch. 7 - You have been offered a very long term investment...Ch. 7 - You are considering opening a new plant. The plant...Ch. 7 - Bill Clinton reportedly was paid 15 million to...Ch. 7 - Prob. 13PCh. 7 - Innovation Company is thinking about marketing a...Ch. 7 - You have 3 projects with the following cash flows:...Ch. 7 - You own a coal mining company and are considering...Ch. 7 - Prob. 17PCh. 7 - Prob. 18PCh. 7 - Prob. 19PCh. 7 - Prob. 20PCh. 7 - You are a real estate agent thinking of placing a...Ch. 7 - Prob. 22PCh. 7 - You are deciding between two mutually exclusive...Ch. 7 - You have just started your summer Internship, and...Ch. 7 - Prob. 25PCh. 7 - Prob. 26PCh. 7 - Prob. 27PCh. 7 - Prob. 28PCh. 7 - Prob. 29PCh. 7 - Prob. 30PCh. 7 - Prob. 31PCh. 7 - Prob. 32PCh. 7 - Prob. 33PCh. 7 - Orchid Biotech Company is evaluating several...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Bill Clinton reportedly was paid $15 million to write his book My Life. Supposethe book took three years to write. In the time he spent writing, Clinton could havebeen paid to make speeches. Given his popularity, assume that he could earn $8million per year (paid at the end of the year) speaking instead of writing. Assumehis cost of capital is 10% 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 $5million in the first year (paid at the end of the year) and these royalties are expectedto decrease at a rate of 30% per year in perpetuity. What is the NPV of the bookwith the royalty payments? c. How many IRRs are there in part (a) of Problem 3? Does the IRR rule give the rightanswer in this case? How many IRRs are there in part (b) of Problem 3? Does theIRR rule work in this case?arrow_forwardBill Clinton reportedly was paid an advance of $ 10.0 million to write his book My Life. Suppose 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 earn $7.9 million a year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 9.3 % 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 $ 5.5 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?arrow_forwardBill Clinton reportedly was paid $10 million to write his book My Life. Suppose 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 earn $8 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10% per year. (Show excel spreadsheet workings) A. What is the NPV of agreeing to write the book (ignoring any royalty payments)? What is the : PV of losing the speaking fees_______ NPV of book deal_______ B. Assume that, once the book is finished, it is expected to generate royalties of $5 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? What is the: PV of perpetuity at year 3_______ PV of perpetuity at year 0 _______ NPV of book deal______arrow_forward
- 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 earn $8.9 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 9.3% 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 $4.8 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? 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 $ (Round to the nearest dollar.)arrow_forwardBill 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 earn $8.6 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10.2% 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 $5.2 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?arrow_forwardBill 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)arrow_forward
- Bill Clinton reportedly was paid $10.5 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 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 are there in this problem? Does the IRR rule give the right answer in this case? (Note: Consider the upfront payment as a positive cash flow and the opportunity cost of missed speaking fees as negative cash flows.) The IRR is %. (Round to two decimal places.)arrow_forwardK 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 earn $8.9 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10.5% 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? ...arrow_forwardBill 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, Kassume that he could eam $8.3 milion 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 royatios of $4 8 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? 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 $(Round to the nearest dollar)arrow_forward
- K 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 earn $8.2 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10.5% 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 $4.8 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? 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 $(Round to the nearest dollar)arrow_forwardK- 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 earn $8.7 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 9.7% 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 $4.8 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? CEELD 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 5 (Round to the nearest dollar)arrow_forwardSarah Palin reportedly was paid a $11 million advance to write her book Going Rogue. The book took one year to write. In the time she spent writing, Palin could have been paid to give speeches and appear on TV news as a political commentator. Given her popularity, assume that she could have earned $8 million over the year (paid at the end of the year) she spent writing the book. Assume that once her book is finished, it is expected to generate royalties of $5 million in the first year (paid at the end of the year) and these royalties are expected to decrease by 40% per year in perpetuity. Assuming that Palin's cost of capital is 10% and given these royalties payments, the NPV of Palin's book deal is closest to:arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Cengage Learning
Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License