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Bogdan [553]
2 years ago
10

Nadine Chelesvig has patented her invention. She is offering a patent manufacturer two contracts for the exclusive right to manu

facture and market her product. Plan A calls for an immediate single lump payment to her of $35,000. Plan B calls for an annual payment of $1,200 plus a royalty of $0.40 per unit sold. The remaining life of the patent is 10 years. Nadine uses a MARR of 7 %/year.
a. What must be the uniform annual sales volume of the product for Nadine to be indifferent between the contracts, based on a present worth analysis?
b. If the sales volume is below the volume determined in (a), which contract would the manufacturer prefer?
Business
1 answer:
Olegator [25]2 years ago
5 0

Answer:

A) 9458 units

B) She would prefer the one with the single lump payment of $35,000 because the present value of the other one would increase with an increase in the units sold.

Explanation:

A) To calculate the uniform annual sales volume based on a present worth analysis, we will make use of the formula for present value of annuity.

Thus;

P = PMT × (1 - ((1/(1 - rⁿ))/r

From the question, we are given;

P = $35,000

PMT = (1200 + 0.4x)

r = 7% = 0.07

n = 10

Thus, Plugging in the relevant values, we have;

(1200 + 0.4x)((1 - (1/(1 + 0.07)^10))/0.07 = 35000

This gives;

(1200 + 0.4x) × 7.0236 = 35000

(1200 + 0.4x) = 35000/7.0236

(1200 + 0.4x) = 4983.2

0.4x = 4983.2 - 1200

0.4x = 3783.2

x = 3783.2/0.4

x = 9458 units

B) She would prefer the one with the single lump payment of $35,000 because the present value of the other one would increase with an increase in the units sold.

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8 0
2 years ago
Southeastern Bell stocks a certain switch connector at its central warehouse for supplying field service offices. The yearly dem
Vesna [10]

Answer:

EOQ= 300 units

Annual ordering cost= $3750

Annual holding cost =$3750

Re-order point =100 units

Explanation:

The Economic Order Quantity (EOQ) is the order size that minimizes the balance of ordering cost and holding cost. At the EOQ, the carrying cost is equal to the holding cost.

It is computed using he formulae below

EOQ = √ (2× Co× D)/Ch

EOQ = √ (2× 75× 15,000)/25

EOQ = 300 units

Annual holding cost

= EOQ/2 × holding cost per unit

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Annual ordering cost

= Annul demand/EOQ × ordering cost per order

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= $3750

Re-order Point

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3 years ago
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Answer:

A. The bond’s conversion ratio is 28.57

B. The bond’s conversion value is $857.14

C. The bond’s straight debt value is $798.70

D. The minimum price at which Neuman’s bonds should sell is $857.14

Explanation:

A. In order to calculate the bond’s conversion ratio we would have to calculate the following formula:

bond’s conversion ratio=par value/conversion price

According to the given data:

par value=$1,000

Conversion price=$35

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bond’s straight debt value=PV(0.08,10,50,1,000)

bond’s straight debt value=$798.70

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