Stefan Ingves, governor of the Swedish National Bank (Riksbanken), reportedly was paid 14 million SEK in...

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Finance

Stefan Ingves, governor of the Swedish National Bank(Riksbanken), reportedly was paid 14 million SEK in advance towrite his book How we boosted inflation. The book tookthree years to write. In the time he spent writing, Stefan couldhave been paid to work as a professor and give speeches as aneconomic commentator in TV shows. Given his knowledge andexperience, assume that he could have earned 8 million SEK per year(paid at the end of the year) working and commenting instead ofwriting the book. Assume his cost of capital is 6.0% per year.
a. What is the NPV of agreeing to write the book(ignoring any royalty payments)?
The NPV is $ ___million. (Round to threedecimals)
b. Assume that, once the book is finished, it isexpected to generate royalties of $5 million in the first year(paid at the end of the year) and these royalties are expected todecrease at a rate of 30% per year in perpetuity. What is the NPVof the book with the royalty payments?
The NPV of the book with the royalty payments is$ million. (Round to three decimals, DO NOT ROUNDTHE RESULT FROM (a))
c. How many IRRs are there in part (a)?
The number of IRRs is _.
Does the IRR rule give the right answer in thiscase?
Fill in "yes" or "no"
d. How many IRRs are there in part (b)?
The number of IRRs is _______.
Does the IRR rule give the right answer in thiscase?
Fill in "yes" or "no" .

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a A B C A x B Year CF DF at 6 Present Value 0 14 1 14 1 8 0943396 7547169811 2 8 0889996 711997152 3 8 0839619 6716954264 NPV 7384 Million 8 Million cash outflow is opportunity See Answer

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Transcribed Image Text

Stefan Ingves, governor of the Swedish National Bank(Riksbanken), reportedly was paid 14 million SEK in advance towrite his book How we boosted inflation. The book tookthree years to write. In the time he spent writing, Stefan couldhave been paid to work as a professor and give speeches as aneconomic commentator in TV shows. Given his knowledge andexperience, assume that he could have earned 8 million SEK per year(paid at the end of the year) working and commenting instead ofwriting the book. Assume his cost of capital is 6.0% per year.a. What is the NPV of agreeing to write the book(ignoring any royalty payments)?The NPV is $ _________million. (Round to threedecimals)b. Assume that, once the book is finished, it isexpected to generate royalties of $5 million in the first year(paid at the end of the year) and these royalties are expected todecrease at a rate of 30% per year in perpetuity. What is the NPVof the book with the royalty payments?The NPV of the book with the royalty payments is________$ million. (Round to three decimals, DO NOT ROUNDTHE RESULT FROM (a))c. How many IRRs are there in part (a)?The number of IRRs is _____.Does the IRR rule give the right answer in thiscase?Fill in "yes" or "no"d. How many IRRs are there in part (b)?The number of IRRs is _________.Does the IRR rule give the right answer in thiscase?Fill in "yes" or "no" .