Bill Clinton reportedly was paid $10 million to write his book My 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 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10% per year.
(a) Speaking Fees Per Annum = $ 8 million, Discount Rate = 10 %, Book Writing Tenure = 3 years and Upfront Payment = $ 10 million
PV of Loss in Speaking Fees = 8 x (1/0.1) x [1-{1/(1.1)^(3)}] = $ 19.8948 million NPV of Book Writing = 10 - 19.8948 = - $ 9.8948 milliom
(b) Royalties per Annum = $ 5 million, Royalties begin at the end of first year post finishing writing (at the end of year 4 from now), Perpetual Decrease Rate = 30 %
Therefore, PV of Perpetuity at the end of Year 3 = 5 / [0.1-(-0.3)] = $ 12.5 million
PV of Perpetuity at the end of Year 0 = 12.5 / (1.1)^(3) = $ 9.39144 million
NPV of Book Deal = 10 + 9.339144 - 19.8948 = - $ 0.5034 million
Bill Clinton reportedly was paid $10 million to write his book My Life. Suppose the book...
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