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Professor Wendy Smith has been offered the following deal: A law firm would like to retain her for an upfront payment of $60,000. In return,
Professor Wendy Smith has been offered the following deal: A law firm would like to retain her for an upfront payment of $60,000. In return, for the next year, the firm would have access to eight hours of her time every month. Smith's rate is $636 per hour, and her opportunity cost of capital is 15% (equivalent annual rate, EAR). What is the IRR (annual)? What does the IRR rule advise regarding this opportunity? What is the NPV? What does the NPV rule say about this opportunity? What is the IRR (annual)? The IRR (annual) is %. (Round to two decimal places.) What does the standard IRR rule (accept projects with an IRR > Cost of Capital) advise regarding this opportunity? (Select from the drop-down menu.) Smith's cost of capital is 15%, so according to the IRR rule, she should this opportunity. What is the NPV? The NPV is $ (Round to the nearest cent.) What does the NPV rule say about this opportunity? (Select from the drop-down menus.) The NPV is so the correct decision is to the deal. Note that in this case, because the positive cash flow come before the negative cash flows, this project is like borrowing money; hence having an IRR lower than the cost of capital leads to a positive NPV
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