Reference no: EM133011508

Problem 1: Saul Hubson has a novel idea to embed diodes into his new model of electric guitars but discovered that Fretlite, Inc. has a patent related to his idea. Saul can get a ten-year license of the patent for a one-time fee of $600,000. He is convinced that this new diode model guitar will earn a profit of $150,000 per year. While the diodes will add material cost, it will be negated because more guitars will be sold allowing them to buy wood at a volume discount. Because the manufacturing process is more complex, he will need to send the employees once each year to Fretlite at a cost of $3,500 per year and is to increase $500 per year. At the end of the ten-year license, Fretlite will pay Saul's company (Slashtastic Guitars) $20,000 for placing a small Fretlite logo on the back of each guitar made. What rate of return will Slashtastic earn on the new model?