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 $425,000. He is convinced that this new diode model guitar will earn a revenue of $85,000 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 $3,100 per year and is to increase $400 per year. At the end of the ten-year license, Fretlite will pay Sauls company (Slashtastic Guitars) $18,500 for placing a small Fretlite logo on back of each guitar made. What rate of return will Slashtastic earn on the new model?

Suggestion: Find the net cash flow of each year (including year 0) and use the IRR function on a calculator or Excel to find the rate of return.