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

question 71

Multiple Choice

Use the following information to answer the question(s) below.
Sarah Palin reportedly was paid a $11 million advance to write her book Going Rogue.The book took one year to write.In the time she spent writing,Palin could have been paid to give speeches and appear on TV news as a political commentator.Given her popularity,assume that she could have earned $8 million over the year (paid at the end of the year) she spent writing the book.
-Assume that once her book is finished,it is expected to generate royalties of $5 million in the first year (paid at the end of the year) and these royalties are expected to decrease by 40% per year in perpetuity.Assuming that Palin's cost of capital is 10% and given these royalties payments,the NPV of Palin's book deal is closest to:

• A)$3.75 million.
• B)$12.20 million.
• C)$13.00 million.
• D)$13.75 million.

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Definitions:

Scanning Tool

A device used in automotive diagnostics to read and clear trouble codes, monitor real-time data, and perform system tests.

Hydraulic System

A system using pressurized fluid to transfer force or motion, found in various machinery and vehicle brake systems.

Test Strips

Strips used for various types of testing, often chemical, by indicating certain conditions through color change.

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A type of hydraulic fluid used in brake systems to transfer force into pressure, amplifying the braking force applied by the driver.