Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $48,000. In return, for the next year the firm would have access to eight hours of her time every month. As an alternative payment arrangement, the firm would pay Professor Smith's hourly rate for the eight hours each month. Smith's rate is $535 per hour and her opportunity cost of capital is 15% per year. What does the IRR rule advise regarding the payment arrangement? (Hint. Find the monthly rate that will yield an effective annual rate of 15%.) What about the NPV rule? The annual IRR is 13.44 %. (Round to two decimal places.) The IRR rule advises: (Select the best choice below.) A. Since the IRR is less than the cost of capital, 15%, Smith should turn down this opportunity. OB. Since the IRR is less than the cost of capital, 15%, Smith should accept this opportunity. OC. With an IRR of 15% and with Smith's cost of capital at 13.44%, according to the IRR rule, she should reject this opportunity. OD. None of the above. The NPV is $31,898.34 (Round to the nearest cent.)
Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $48,000. In return, for the next year the firm would have access to eight hours of her time every month. As an alternative payment arrangement, the firm would pay Professor Smith's hourly rate for the eight hours each month. Smith's rate is $535 per hour and her opportunity cost of capital is 15% per year. What does the IRR rule advise regarding the payment arrangement? (Hint. Find the monthly rate that will yield an effective annual rate of 15%.) What about the NPV rule? The annual IRR is 13.44 %. (Round to two decimal places.) The IRR rule advises: (Select the best choice below.) A. Since the IRR is less than the cost of capital, 15%, Smith should turn down this opportunity. OB. Since the IRR is less than the cost of capital, 15%, Smith should accept this opportunity. OC. With an IRR of 15% and with Smith's cost of capital at 13.44%, according to the IRR rule, she should reject this opportunity. OD. None of the above. The NPV is $31,898.34 (Round to the nearest cent.)
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 22P
Related questions
Question
AI-Generated Solution
AI-generated content may present inaccurate or offensive content that does not represent bartleby’s views.
Unlock instant AI solutions
Tap the button
to generate a solution
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT