Question
Camila Jurez owns a successful law firm, her core business is corporate law, but occasionally Camila also works with mandates from wealthy clients requesting assistance
Camila Jurez owns a successful law firm, her core business is corporate law, but occasionally Camila also works with mandates from wealthy clients requesting assistance in private legal matters. You are Camilas financial advisor, and she asks you to help her decide which of the private mandates she should accept.
You estimate that Camilas opportunity cost of capital is 15% per effective annual and that she gives up $100,000 in monthly income from corporate work (assume this income is paid at the end of each month) if she accepts a private mandate.
Camila is also interested in working for another private client B who is willing to pay her $140,000 per month, at the end of each month after receiving the mandate. This mandate would last 6 months, during which time Camila would receive monthly cash flows of $140,000. However, this job requires Camila to do some research for the next 2 months (starting today, before the mandate begins) to convince the client that she is the right person for the job. It is important to mention that the client will not pay her during the period that this investigation lasts. During this period Camila also gives up the $100,000 of monthly income from corporate work described at the beginning.
If Camilas cost of borrowing is 10% effective annual, calculate the effective annual modified internal rate (Modified IRR) for this mandate.
107.27% 39.84% 95.43% 66.86% 78.11% 107.27% 39.84% 95.43% 66.86% 78.11%Step by Step Solution
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