Problem:
Nadine Chelesvig has patented her invention. She is offering a patent manufacturer two contracts for the exclusive right to manufacture 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.
Required:
Question 1: 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?
Question 2: If the sales volume is below the volume determined in (a), which contract would the manufacturer prefer? Please present complete computation and also provide full description.