Use the Following Information to Answer the Question(s)below

question 38

Multiple Choice

Use the following information to answer the question(s) below.
Frank Dewey Esquire from the firm of Dewey,Cheatum,and Howe,has been offered an upfront retainer of $30,000 to provide legal services over the next 12 months to Taggart Transcontinental.In return for this upfront payment,Taggart Transcontinental would have access to 8 hours of legal services from Frank for each of the next 12 months.Frank's normal billable rate is $250 per hour for legal services.
-Assuming that Dewey's cost of capital is 12% EAR,then the NPV of his retainer offer is closest to:

• A)-$7500.
• B)-$7400.
• C)$6000.
• D)$7400.

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Definitions:

Direct Write-Off Method

A method of accounting for bad debts that writes off an outstanding account receivable as a bad debt expense only when it becomes evident the debt is uncollectible.

Reinstatement

The process of restoring a previous condition or position, such as reinstating a lapsed insurance policy or an employee's job position.

Receipt of Cash

The process of receiving cash as a form of payment, often recorded during accounting transactions.

Accounts Receivable Turnover

A financial metric that measures how efficiently a company collects revenue from its credit customers, calculated as sales divided by the average accounts receivable.