Can you please help me answer this question, and show me the solution

24) Five years ago Bianca Curtis wrote what has become the leading Tort textbook.

She has been receiving royalties based on revenues reported by the

publisher. These revenues started at $2 million in the first year, and grew

steadily by 5% per year. Her royalty rate is 10% of revenue. Recently, she

hired an independent auditor who discovered that the publisher had been

under reporting revenues. The book had actually earned 20% more in

revenues than had been reported on her royalty statements.

A) Assuming the publisher pays an interest rate of 4% on missed payments,

how much money does the publisher owe Diana?

B) The publisher is short of cash, so the publisher agreed to pay 50% of the

royalty shortfall in cash today and increase Bianca's royalty rate on future

book sales to pay for the remaining 50% shortfall. Assume the book will

10

generate revenues for an additional 10 years and that the current revenue

growth of 5% will continue. If Diana would otherwise put the money into

a bank account paying interest of 3%, what royalty rate would make her

indifferent between accepting an increase in the future royalty rate and

receiving the total cash owed today.