Ten years ago Diana Torres wrote what has become the leading Tort textbook. She has been receiving royalties based onrevenues reported by the publisher. These revenues started at $ 1.7 million in the first year, and grew steadily by 4 % peryear. Her royalty rate is 20 % of revenue. Recently, she hired an auditor who discovered that the publisher had beenunder reporting revenues. The book had actually earned 10% more in revenues than had been reported on her royaltystatements. a. Assuming the publisher pays an interest rate of 5% on missed payments, how much money does thepublisher owe Diana? b. The publisher is short of cash, so instead of paying Diana what is owed, the publisher isoffering to increase her royalty rate on future book sales. Assume the book will generate revenues for an additional 20years and that the current revenue growth will continue. If Diana would otherwise put the money into a bank accountpaying interest of 3.8 %, what royalty rate would make her indifferent between accepting an increase in the futureroyalty rate and receiving the cash owed today.

Stated revenues = $1.7 millionRevenue growth rate = 4%Royalty rate = 20%Interest on missed payments…

Answered: Ten years ago Diana Torres wrote what…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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