what is the NPV of the book with the royalty payments (part B)? I already answered part A of the problem correctly and I need help wirh part B. I also attached a similar example of the problem showing the procedure of it.
P 8-10 (similar to) Question Help al Clinton reported pod 15. i wile his book My L. The book book tyto write in the time he part writer, Clinton could be paid to make speeches in his popular Bolle could eam 38 milion per you paid at the end of the years instead of writing. Assume cost of cap.9.2% per you Shree balene birged, 2 lb peded to the poet of 51.7 million in the first yow (pande und me you and these reyoltes an expected to decrease at tale 30% per year in perpetuty What is the NPV book with the royalty payer What to write togering any royalty The NPV agroing to write the book ignoring any royalty Day) 7448483 Round to the nearest) Anme Bul.and the book, pead openersin montim of 54.7 million in the fret you will be and do you and the royotion aw nieced to do ata o 30% per year in perpetuty White NPV the book with the royalty ? Thu NPV af De book with any payuntas Round to the newest dolore your answer in the web and the CCR Check eLab (Graded) Assignment 4 15 of 20 (16 complete) View an example Bill Clinton reportedly was paid $10.5 million to write his book My Life. The book took three years to write. In the time he spent writing, Clinton could have been paid to make speeches. Given his popularity, assume that he could earn $9.2 million a year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10.7% per year. a. What the NPV of agreeing to write the book (ignoring any royalty payments)? b. Assume that once the book is finished, it is expected to generate royalties of $5.8 million in the first year (paid at the end of the year) 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 royalty payments? b. Assume that once the book is finished, it is expected to generate royalties of $5.8 million in the first year (paid at the end of the year) 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 royalty payments? Here is the cash flow timeline for this cate: Year 2 Cash Flows (millions) $10.5 -592 - 39.2 - $92 $58 $4.06 $2.84 Calculate the PV of the royalties at year 3 using the formula for a declining perpetuity CF Therefore, Press Continue to be more on parts remaining Continue Close MacBook Air FS 2 38 $ 4 & 7 5 8 0 od nceLab (Graded) Assignment 4 15 of 20 (16 complete) View an Example w ins KO sk Bi Clinton reportedly was paid $10.5 million to write his book My Life. The book took three years to write. In the time he spent writing, Clinton could have been paid to make speeches. Given his popularity, assume that he could earn $9.2 million a year (paid at the end of the your speaking instead of writing. Assume his cost of capital is 10.7% per year. a. What is the NPV of agreeing to write the book ignoring any royalty payments)? b. Assume that once the book is finished, it is expected to generate royalties of $5.8 million in the first year (paid at the end of the year) 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 royalty payments ? gan expe Es is Therefore, $5.8 million PV 0.107-(-0.3) $14,250.614 To discount PV, for three years to derive today's value, use the following formular PV PV Therefore, $14.250,614 PV- = $10,504,871 (1 + 0.1077 Press Continue to see more 2 parts remaining Close ontinue Co MacBook Air TS 7 S % merwinyes eText Amazon.com: Pri... Community Feed MInbox - camirivan.. > My Buckeye Link V Citation Machine G googlet C anceLab (Graded) Assignment 4 15 of 20 (16 complete) to w ingings View an Example Soput 0% po is Ba Cinton reportedly was paid $10.5 milion to write his book My Life. The book took three years to write in the time he spent writing, Cintould have been paid to make speeches. Given his popularity, assume that he could earn $ 2 milion a year (paid at the end of book the year) speaking instead of writing. Assume his cost of capital is 10.7% per year. a. What is the NPV of agreeing to write the book (ignoring any royalty payments? oing an b. Assume that, once the book is finished, it is expected to generato royalties of $5.8 million in the first year (paid at the end of the and these royalties are expected to decrease at a rate of 30% per year in perpetuilty. What is the NPV of the book with the royalty is payments? PVE (1+r) ents in Therefore, los per PV- $14,250,814 =$10,504,871 (1 +0.1077 Using a financial calculator or Excel V PART EV Giver 3 10.7 0 14250614 Sov for -10504871 Excel Formula PVIRATE, NPER, PMT, FV, TYPE-PPV10.107,3,0, 14250614,0) - 10504871 Note the PV will compute as a negative number because you entered the FV as positie, however because it is the present value of the revenues you will use a positive number in the NPV formula Press Continue to see more arut then port remaining Continue Close MacBook Air 11 FS fa S A # 3 % 5 4 & 7 6 0
