Does the IRR rule agree with the NPV rule

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Reference no: EM132005995

1. Reportedly was paid $ 9.9 million to write his bookThe Fork in the Road The Fork in the Road. The book took three years to write. In the time he spent writing, Jack SmithJack Smith could have been paid to make speeches. Given his? popularity, assume that he could earn $ 8.4 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 $ 10989557−$10,989,557. 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.)

The IRR is ___%

2. Your factory has been offered a contract to produce a part for a new printer. The contract would last for three? years, and your cash flows from the contract would be $ 5.00 million per year. Your upfront setup costs to be ready to produce the part would be $ 8.00 million. Your discount rate for this contract is 8.0%.

a. What is the IRR?

b. The NPV is $ 4.89 million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule?

Reference no: EM132005995

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