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Bob reportedly was paid an advance of $10 million to write his book My Life. Suppose the book took 3 years to write. In the

Bob reportedly was paid an advance of $10 million to write his book My Life. Suppose the book took 3 years to write. In the time he spent writing, Bob could have been paid to make speeches. Given his popularity, assume that he could earn $8 million a year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10% per year.

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

a. $-8.534 million b. $10 million c. -$14 million d. -$9.895 million

b. does the IRR investment rule work for this decision?

a. not enough information to determine b. Yes c. it depends on the magnitude of the IRR d. No

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