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 number of potential IRRs that exist for this problem is equal to:
A)0.
B)1.
C)2.
D)12.

Question

Quizplus · Accepted Answer

There is only one potential IRR for this problem because there is only one cash flow (the upfront retainer of $30,000) and one set of outflows (the 96 hours of legal services over the next 12 months). Therefore, there is only one discount rate at which the present value of the cash flow equals the upfront retainer, which is the IRR.

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