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5. Consider an innovation that is expected to generate $150,000 in profits at the end of each of the next 5 years, and after that
5. Consider an innovation that is expected to generate $150,000 in profits at the end of each of the next 5 years, and after that market competition is expected to drive the profits from the innovation to zero. If the interest rate (or discount rate) is 3%, how much should the firm be willing and able to pay to research and develop the innovation? 6. Now consider the same firm as in question 5. Suppose that the firm can apply for a patent, which would guarantee the firm profits of $150,000 at the end of each of the next 25 years, at which point market entry would drive profits to zero. How much should the firm be willing and able to pay to research, develop, and patent the innovation now? By how much does this change if the interest rate increases from 3% to 5%
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