Question

Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $ 50, 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 $ 550 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?

Answer #1

IRR can be calculated using the financial calculator, I/Y will be the value

N= 12 , PMT = 550*8 = $4400( $550 per hour for 8 hours), PV = -$50000 , FV = 0

Put all these values in the financial calculator

I/y = 0.84% ( This is the monthly figure)

**Annual IRR = (1.008484)^12= 1.106696 = EAR of
10.67%**

**IRR is less than her opportunity cost of capital so she
should ask for upfront payment**

NPV can be calculated using the PV function in the financial calculator

N= 12, I/Y = 15/12%(given), PMT = $4400, FV= 0

Put all these values in financial calculator

We get PV = 1010.96$

**which is positive correct decision is to accept the
deal.**

Professor Wendy Smith has been offered the following
opportunity: A law firm would like to retain her for an upfront
payment of $ 50 comma 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 $ 550 per hour and her opportunity cost of capital is 15...

Professor Wendy Smith has been offered the following
opportunity: A law firm would like to retain her for an upfront
payment of $ 50,000. 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 eight hours each month. Smith's rate is $
555 per hour and her opportunity cost of capital is 15 % per year....

Professor Wendy Smith has been offered the following
opportunity: A law firm would like to retain her for an upfront
payment of
$50,000.
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
$545
per hour and her opportunity cost of capital is
15%
per year. What does...

Professor Wendy Smith has been offered the following?
opportunity: A law firm would like to retain her for an upfront
payment of $50,000. 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...

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 $545 per hour and her opportunity cost of capital is 15% per
year. What does the...

Professor Wendy Smith has been offered the following deal: A law
firm would like to retain her for an up-front payment of $50,000.
In return, for the next year the firm would have access to eight
hours of her time every month. Smith’s rate is $550 per hour and
her opportunity cost of capital is 15% per year. What does the IRR
rule advise regarding this opportunity? What about the NPV
rule?
Complete the steps below using cell references to...

What role could the governance of ethics have played
if it had been in existence in the organization? Assess the
leadership of Enron from an ethical perspective.
THE FALL OF ENRON: A STAKEHOLDER FAILURE
Once upon a time, there was a gleaming headquarters
office tower in Houston, with a giant tilted "£"' in front, slowly
revolving in the Texas sun. The Enron Corporation, which once
ranked among the top Fortune 500 companies, collapsed in 2001 under
a mountain of debt...

Discuss ethical issues that can be identified in this
case and the mode of managing ethics Enron finds itself in this
case. How would you describe the ethical culture and levels of
trust at Enron? Provide reasons for your assessment.
THE FALL OF ENRON: A STAKEHOLDER FAILURE
Once upon a time, there was a gleaming headquarters
office tower in Houston, with a giant tilted "£"' in front, slowly
revolving in the Texas sun. The Enron Corporation, which once
ranked among...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 4 minutes ago

asked 12 minutes ago

asked 12 minutes ago

asked 29 minutes ago

asked 30 minutes ago

asked 31 minutes ago

asked 32 minutes ago

asked 34 minutes ago

asked 38 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago