In: Finance
bill clinton reportedly was paid an advance of$ 10.0million to write his book My LifeMy Life. Suppose 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$ 8.4million a year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 9.8% 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 $ 5.3
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?
a. What is the NPV of agreeing to write the book (ignoring any royalty payments)?
The NPV of agreeing to write the book is −10.963
I was able to get an answer for part a but can solve part b please help