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Bill Clinton reportedly was paid an advance of $10.0 million to write his book My Life . Suppose the book took three years to write.

Bill Clinton reportedly was paid an advance of $10.0 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 $ 7.8 million a year​ (paid at the end of the​ year) speaking instead of writing. Assume his cost of capital is 10.4 %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 $ 5.1 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?

Top Answer

a). NPV of agreeing to write the book​ is calculated by reducing the present value of earnings which Bill can make from... View the full answer

3 comments
  • I kept getting a slightly different answer in excel so that you for the step by step
    • JessicaS075
    • Nov 03, 2018 at 1:58pm
  • In excel, there is no rounding off, but as we have to solve manually, figures are to be rounded off little bit due to which answers slightly differs. Try to rounding off figures in excel to 4 decimal points.
    • karanguju
    • Nov 03, 2018 at 2:01pm
  • I have solved this using calculator, little differences always occur.
    • karanguju
    • Nov 03, 2018 at 2:02pm

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