15. How many IRRs are there in part (a) of Problem 10? Does the IRR rule give th

Question

15. How many IRRs are there in part (a) of Problem 10? Does the IRR rule give the correct answer in this case?

Bill Clinton reportedly was paid $10 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 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)?

Explanation / Answer

NPV of the agreement to write a book = -9.89 million

10.00% Cash flows Year Discounted CF                      10.00 0 10.00                      (8.00) 1 -7.27                      (8.00) 2 -6.61                      (8.00) 3 -6.01

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