1) Professor Wendy Smith has been offered the following oppurtunity. 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 8 hours of her time every month. As an alternative payment arragement, the firm would pay Professor Smith hourly rate of 8 hours each month. Smiths rate is $535 per hour and her opportunity cost of capital is 15% per year.

a) What does the IRR rule advise regarding the payment arragement?

b) What about the NPV rule?

2) You have been offered a contract worth 1.07 million per year for 5 years. However to take the contract you will need to purchase some new equipment. Your discount rate for this project is 11.6% you are still negotiating the purchase price of the equipment. a) What is the most you can pay for the equipment and still have a positive NPV