What is the single payment

Reference no: EM131990139

Question: A manufacturer pays a patent royalty of $1.15 per unit of a product he manufactures, payable at the end of each year. The patent will be in force for an additional 5 years. For this year he manufactures 8,000 units of the product, but it is estimated that the output will increase by 10% per year for the 4 succeeding years. He is considering asking the patent holder to terminate the present royalty contract in exchange for a single payment at present or in exchange for equal annual payments to be made at the end of each of the 5 years. If 8% interest is used, what is (a) the single payment? And the annual payments that are equivalent to the royalty payments in prospect under the present agreement?

Reference no: EM131990139

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