The Stack has just written and recorded the single greatest rock song ever made. The boys in the band believe that the royalties from this song will pay the band a handsome $150,000 every year (at the end of the year) forever. The record studio is also convinced that the song will be a smash hit and that the royalty estimate is accurate. The record studio wants to pay the band up front and not make any more payments for the song. What should the record company offer the band if it uses a discount rate of 4.5%, 7%, or 11%?

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Part 1

a. What should the record company offer the band if they use 4.5% as the discount rate?

b. What should the record company offer the band if they use 7% as the discount rate?

c. What should the record company offer the band if they use 11% as the discount rate?