A manufacturer offers an inventor the choice of two contracts for the exclusive right to manufacture and market the inventor’s patented design. Plan I calls for an immediate single payment of $50,000. Plan II calls for an annual payment of $2,000 plus a royalty of $1.00 for each unit sold. The remaining life of the patent is 10 years. MARR is 10% per year. a. What must be the uniform annual sales to make Plan I and Plan II equally attractive? b. If fewer than the number in (a) are scheduled for production and sales, which plan is more attractive?
A manufacturer offers an inventor the choice of two contracts for the exclusive right to manufacture and market the inventor’s patented design. Plan I calls for an immediate single payment of $50,000. Plan II calls for an annual payment of $2,000 plus a royalty of $1.00 for each unit sold. The remaining life of the patent is 10 years. MARR is 10% per year. a. What must be the uniform annual sales to make Plan I and Plan II equally attractive? b. If fewer than the number in (a) are scheduled for production and sales, which plan is more attractive?
Chapter18: Accounting Periods And Methods
Section: Chapter Questions
Problem 16DQ
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A manufacturer offers an inventor the choice of two contracts for the exclusive right to manufacture and market the inventor’s patented design. Plan I calls for an immediate single payment of $50,000. Plan II calls for an annual payment of $2,000 plus a royalty of $1.00 for each unit sold. The remaining life of the patent is 10 years. MARR is 10% per year. a. What must be the uniform annual sales to make Plan I and Plan II equally attractive? b. If fewer than the number in (a) are scheduled for production and sales, which plan is more attractive?
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