Lemon Ltd. offers executive training seminars using, in part, recorded lectures of a well-known speaker. The agreement calls for Lemon to pay a royalty for the use of the lectures. The lecturer's agent offers Lemon two options. The first option is revenue based and Lemon agrees to pay 25 percent of its revenues to the speaker. The second option is a flat rate of $390,000 annually for the use of the lectures in these seminars. The royalty agreement will run one year and the royalty option chosen cannot be changed during the agreement. All other royalty terms are the same. Lemon charges $1,600 for the seminar and the variable costs for the seminar (excluding any royalty) is $300. Annual fixed costs (excluding any royalties) are $585,000.