Question

Jack Smith reportedly was paid $ 9.8 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 $ 7.6 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 -$ 9,100, 075.

What is the IRR?

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.)

Answer 1

IRR is 57.82% and there Is only one IRR here since the sign change is only one from positive to negative. No the irr gave wrong answer here since NPV is negative