Bill Clinton reportedly was paid $15 million to write his book My Way. 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 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10% per year. Assume also that Mr. Clinton received the $15 million upfront (at year zero) even though it took three years to complete.

(a) What is the NPV of agreeing to write the book (ignoring any royalty payments)?

(b) Assume that, once the book is finished, it is expected to generate royalties of $5 million in the first year, paid at the end of the year (i.e., the first royalty payment will occur at the end of year 4), and these royalties are expected to decrease at a rate of 30% per year into perpetuity. What is the NPV of the book with the royalty payments?

(c) How many IRRs are there in part (a)? Does the IRR rule give the right answer in this case? How many IRRs are there in part (b)? Does the IRR rule work in this case? (Hint: I do not expect numerical answers here, but I suggest using Excel to calculate the NPV in parts (a) and (b) using an r of 10%, then adjust this rate in both directions by different amounts to visualize how NPV changes as a function of r. If you want to get fancy and have the knowledge, you can use a data table in Excel or MATLAB to actually plot these functions.)