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 $550 per hour and her opportunity cost of capital is 16% 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 16%.) What about the NPV rule? The annual IRR is ☐ %. (Round to two decimal places.)

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 $550 per hour and her opportunity cost of capital is 16% 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 16%.) What about the NPV rule? The annual IRR is ☐ %. (Round to two decimal places.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 26P

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