Mary is in contract negotiations with a publishing house for her new novel. She has two options. She

may be paid $100,000 up front, and receive royalties that are expected to total $26,000 at the end of

each of the next five years. Alternatively, she can receive $200,000 up front and no royalties. Given a

discount rate of 8%, what should Mary do, and why?

a) Take the $200,000 up front because the royalties arent a sure thing.

b) Take the $100,000 with royalty payments because it totals $230,000 which is better than

$200,000.

c) Take the $100,000 with royalty payments because the Present Value is $203,810 which is

better than $200,000.

d) Take the $200,000 because the additional $3,810 of Present Value isnt worth the risk.