reportedly was paid $ 10.5 million to write his book The Fork in the Road. The...
reportedly was paid $ 10.5 million to write his book The Fork in the Road. The book took three years to write. In the time he spent writing, Jack Smith could have been paid to make speeches. Given his popularity, assume that he could earn $ 7.7 million a year (paid at the end of the year) speaking instead of writing. If his cost of capital is 10 % per year, then the NPV of agreeing to write the book (ignoring any royalty payments) is negative $ 8,648,760. 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.) what is the IRR?
Homework Answers
1. There is only one IRRs in this situation and it is with taking up to write a book and leaving speech revenue
2. Yes the IRR can give a solution in this case as it can be used in mutually exclusive decisions
3. Computation of IRR
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at the end of the year) speaking instead of writing. Assume his
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