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:

Serotonin

A neurotransmitter in the brain that affects mood, emotion, sleep, and appetite regulation, critical in psychological well-being.

Lithium

A chemical element used as a medication, particularly effective in treating and preventing episodes of bipolar disorder.

Posttraumatic Stress Disorder

A mental health condition triggered by experiencing or witnessing a terrifying event, characterized by severe anxiety, flashbacks, and uncontrollable thoughts about the event.

Manic Episodes

Periods of abnormally elevated mood, energy, and activity levels, often characteristic of bipolar disorder.