Bill Clinton reportedly was paid an advance of $10.0 million to write his book My Life.

Suppose 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 $7.9 million a year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 9.6% per year.

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 $5.2 million in the first year (paid at the end of the year) and these royalties are expected to decrease at a rate of 30% per year in perpetuity. What is the NPV of the book with the royalty payments?

You are considering an investment in a clothes distributer. The company needs $103,000 today and expects to repay you

$124,000 in a year from now. What is the IRR of this investment opportunity? Given the riskiness of the investment opportunity, your cost of capital is 14%.

What does the IRR rule say about whether you should invest?