John Howard reportedly was paid $ 420 000 to write his book Lazarus Rising. The book took three years to write. In the time he spentwriting, Howard could have been paid to make speeches. Given his significance asAustralia's second-longest serving PrimeMinister, assume that he could earn $ 310 000 per year(paid at the end of theyear) speaking instead of writing. Assume his cost of capital is 10.1 % per year.

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

b. Assumethat, once the book isfinished, it is expected to generate royalties of $ 210 000 in the first year(paid at the end of theyear) 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 royaltypayments?