Bill Clinton reportedly was paid

$9.5

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

$8.2

million a year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is

9.5%

per year. Assume also that once the book is finished, it is expected to generate royalties of

$5.31

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

$834,000.

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

A. One IRR

B.Two IRRs

C.Three IRRs

D.Four IRRs

Does the IRR rule give the right answer in this case?(Select the best choice below.)

A.Yes, because the higher IRR (51.1%) is greater than the cost of capital.

B.No, because there are two IRRs the IRR rule cannot be used.

C. No, because the IRR is negative.

D. Yes, because the NPV is positive.