Question & Answer: A) Use monthly compounding periods. B) Use annual compounding periods and the appropriate effective annual interest rate that is equivalent to 12.0% com…..

A) Use monthly compounding periods. B) Use annual compounding periods and the appropriate effective annual interest rate that is equivalent to 12.0% compounded monthly. 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 $6,000 per year for the first 5 years, $8,000 per year for the next 4 years and $10,000 per year for the last 6 years. Company B offers to pre-pay the expected royalty payments for $70,000 now. If Company A considers 10% per year to be its minimum acceptable return on investment, should it accept the pre-payment offer for $70,000 now or take the royalty payments year by year? What uniform annual payments for the next 15 years are equivalent to the non-uniform series of royalty payments described in Problem 2-20? A machine which has a 10 year life will cost $11,000 now with annual operating costs of $500 the first year and increasing $50 per year each of the next 9 years. If the salvage