Question

Professor Wendy Smith has been offered the following​ opportunity: A law firm would like to retain her for an upfront payment of $48,000. 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 $535 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

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