Company A owns a patent with $15$ years of remaining life. Company B is paying royalties

to company A for a license to the patent. It is estimated that royalty payments for the next $15$

years will be $$5500$ per year for the first five years $(1-5),$ $$7500$ per year for the next five years

$(6-10),$ and $$10,000$ per year for the last five years $(11-15).$ Company B offers to prepay the

expected royalty payments with $$70,000$ now. If company A has a minimum acceptable rate of

return of $8\%$ on its investments, should it accept the payment offer of $$70,000$ now or take the

royalty payments for the next $15$ years?

Answer rating: 100% (QA)

To determine whether Company A should accept the prepayment offer of 70000 now or take the royalty p... View the full answer