Project Details

John and Jane Doe are newlyweds with executive track careers atACME Gadget Company. In five years, the Does would like to have afamily, envisioning two young children, Jack and Jill. With an eyefor the future, John and Jane are now looking to ensure that theirfuture family has a place to call home, that their future childrenwill have access to all the education they desire, and that theythemselves will be able to enjoy retirement when the time comes. Assuch, they’ve come to your financial planning company for advicefor purchasing a house, planning for retirement, setting up a RESPand for your perspective on a side venture. They’ve provided youwith the background and questions below.

A side-venture

Jane is an inventor, working for the ACME Gadget Company inresearch and development. She recently proposed the development ofan advanced technology, but it was deemed too risky for R&D atACME. However, ACME has agreed that if Jane successfully developsthe technology on her own, ACME will acquire a license to use thetechnology for a period of 10 years. To develop the technology willrequire an initial expenditure of $150,000 and an additionalexpenditure of $150,000 at the end of each of the next 2 years.When the patent is approved in Year 4, it is expected to belicensed to the ACME Gadget Company for an upfront fee of 100,000plus an additional fee of $90,000/year for 10 years. At that timethe product that uses the technology will be replaced by a newmodel. What is the rate of return on the Jane’s advancedtechnology?

Please include calculations and diagrams.