Question

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 $ 8.3 million per year​ (paid at the end of the​ year) speaking instead of writing. Assume his cost of capital is 9.5 % 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 $ 4.7 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 ​$ negative 5,823,927. ​(Round to the nearest​ dollar.) b. Assume​ that, once the book is​ finished, it is expected to generate royalties of $ 4.7 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? The NPV of the book with the royalty payments is ​$ nothing. ​

Answer 1