Problem:

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.

Required:

Question 1: Assuming that Dewey's cost of capital is 12% EAR, what is the NPV of his retainer offer?

Question 2: Assuming that Dewey's cost of capital is 12% EAR, what is the IRR(s) for this problem?

Note: Please provide reasons to support your answer.