A famous author is about to meet his editor. The deal that he is considering to accept to write a new finance

A famous author is about to meet his editor. The deal that he is considering to accept to write a new finance text is the following.

• 1. The author will receive an up front payment of $1,000,000

• 2. During the next 3 year, he will be busy writing the book. It will cost him $500,000 a year in term of consulting foregone (no consulting is allowed while writing).

• The current interest rate is 10%.

• His financial calculator tells him that the IRR on this deal is 23%

• Should he sign the contract?

Suppose now the editor announce that the author will receive $20,000 a year in perpetuity once the book is published.

• Is this a better deal?


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