Mary Is in Contract Negotiations with a Publishing House for Her

question 87

Multiple Choice

Mary is in contract negotiations with a publishing house for her new novel. She has two options. She may be paid $100,000 up front, and receive royalties that are expected to total $26,000 at the end of each of the next five years. Alternatively, she can receive $200,000 up front and no royalties. Which of the following investment rules would indicate that she should take the former deal, given a discount rate of 8%?
Rule I: The Net Present Value rule
Rule II: The Payback Rule with a payback period of two years
Rule III: The internal rate of return (IRR) Rule

• A) Rule I only
• B) Rule III only
• C) Rule II and III
• D) Rule I and II

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Definitions:

Merton

Robert K. Merton was an influential American sociologist known for his theories on social structure and anomie.

Sutherland

An American sociologist, Edwin H. Sutherland is famous for developing the Differential Association theory, emphasizing that criminal behavior is learned through social interactions.

Differential Association

A theory in criminology that proposes individuals learn criminal behavior through interaction with others.

Criminality

The state of being involved in criminal activities or the tendency to commit crimes.