How many irrs are there in this problem

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Reference no: EM132052953

Bill Clinton reportedly was paid $ 9.7 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 $ 8.5 million a year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 9.8 % per year. Assume also that once the book is finished, it is expected to generate royalties of $ 4.67 million in the first year? (paid at the end of the year) and these royalties are expected to decrease at 30 % per year in perpetuity. The NPV of the book with the royalty payments is negative $2,649,000.

How many IRRs are there in this problem? Does the IRR rule work in this case?

Reference no: EM132052953

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