Question

4. Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $49,000. 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 $540 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 IRR is %. (Round to two decimal places.) The IRR rule advises: (Select the best choice below.) O A. Since the IRR is less than the cost of capital, 15%, Smith should turn down this opportunity OB. With an IRR of 15% and with Smith's cost of capital at 11.05%, according to the IRR rule, she should reject this opportunity. OC. Since the IRR is less than the cost of capital, 15%, Smith should accept this opportunity. OD. None of the above. The NPV is $ (Round to the nearest dollar.) The NPV rule advises: (Select the best choice below.) O A. Since the NPV is negative, the correct decision is to accept the upfront retainer. OB. Even though the NPV is negative, the IRR is below the cost of capital, so the correct decision is to reject the upfront payment. OC. Even though the NPV is positive, the IRR is high enough to accept the upfront retainer. OD. None of the above.

Answer 1

UPVOTE. ANSWER IN THE IMAGE.

Чисор Paste cel Style Undo Tables BI U Dab v A 3 Merge & Centre - $ % 98 Conditional Format Painter Formatting Clipboard Font Alignment Number fx =NPV($B$8,E7:E18)+E6 B C D E H J L M N O NPV = present value of cash inflow-the present value of cash outflow. IRR: It is the discount rate at which the present value of projects cash outflows (cost) is equal to the present value of projects cash inflow. A P PERIOD IRR YEARLY Choose option 10.53% A IRR(E6:E18) 0.88% PERIODIC discount rate 1.17% NPV NPV($B$8,E7:E18)+E6 -900.81 yearly rate 15 BBBO0wNO cashflow -49000 4320 4320 4320 4320 4320 4320 4320 4320 4320 4320