Bill Clinton reportedly was paid an advance of $10 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 $7.72 million a year (paid at the end of the vear speaking instead ot writing. Assume his cost of capital IS 9.9% per vear. a. Based on the above cash flows, how many IRRs does the opportunity have? Does the IRR rule give the right answer in this case? b. Assume now that once the book is finished, it is expected to generate royalties of $5.34 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. How many IRRs are there in this case? Does the IRR rule work in this case? a. Based on the above cash flows, how many IRRs does the opportunity have? (Select the best choice below.) 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. No, because the IRR is greater than the cost of capital and so would suggest taking the project, but its NPV is negative and so it should be rejected. B. Yes, because the IRR is greater than the cost of capital and the NP is positive, both rules would suggest taking the project. C. Yes. because the IRR is less than the cost of capital and the NPV is negative. both rules would suggest rejecting the project. D. No. because the IRR is less than the cost of capital and so would suggest reiecting the proiect, but its NPV is positive and so it should be taken. b. Assume also that once the book is finished, it is expected to generate rovalties of $5.34 million in the first vear (paid at the end of the vear) and these rovalties are expected to decrease at 30% per ear in perpetuitv. How many IRRs are there in this case? (Select the best choice below.) A. Three B. None C. Two D. One Does the IRR rule work in this case? (Select the best choice below.) A. Yes. because when there are 2 IRRs. the NPV is negative if and only if the cost of capital is between the IRRs B. No, because there is no IRR for this project, so the IRR rule cannot be applied. C. No. because there are 2 IRRs for this proiect, so the IRR rule cannot be applied D. Yes. because when there is no IRR. NPY must be positive.

of the year) speaking instead of writing. Assume his cost of capital is 9.9% per year. a. Based on the above cash flows, how many IRRs does the opportunity have? Does the IRR rule give the right answer in this case? in this case? a. Based on the above cash flows, how many IRRs does the opportunity have? (Select the best choice below.) 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. No, because the IRR is greater than the cost of capital and so would suggest taking the project, but its NPV is negative and so it should be rejected. B. Yes, because the IRR is greater than the cost of capital and the NPV is positive, both rules would suggest taking the project. C. Yes, because the IRR is less than the cost of capital and the NPV is negative, both rules would suggest rejecting the project. D. No, because the IRR is less than the cost of capital and so would suggest rejecting the project, but its NPV is positive and so it should be taken. choice below.) A. Three B. None C. Two D. One Does the IRR rule work in this case? (Select the best choice below.) A. Yes, because when there are 2 IRRs, the NPV is negative if and only if the cost of capital is between the IRRs. B. No, because there is no IRR for this project, so the IRR rule cannot be applied. C. No, because there are 2 IRRs for this project, so the IRR rule cannot be applied. D. Yes, because when there is no IRR, NPV must be positive