Ten years ago, your friend’s mum wrote an Indian-Italian fusion cookbook which has become a global...

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Ten years ago, your friend’s mum wrote an Indian-Italian fusioncookbook which has become a global bestseller. She has beenreceiving annual royalties based on revenues reported by thepublisher. These revenues started at $1 million in the first yearand grew steadily by 5% per year. Her royalty rate has been 15% ofthe revenues. Recently, she hired an auditor who discovered thatthe publisher had been under-reporting the revenues. The book hadactually earned 10% more in annual revenues than had been reportedon her royalty statements. Assuming the publisher pays an interestrate of 4% p.a. on missed annual payments, the money owed by thepublisher is closest to: (a)$136,888. b) $150,634. c) $222,976. d)$245,367

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c 222976 To calculate the money owed to the publisher we need to first calculate the underreporting done each year and royalty missed each year Royalty underpayment in year 1 1000000 1 010 015 15000 Interest on underpayment 15000 004 10 years 6000 Royalty See Answer

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Ten years ago, your friend’s mum wrote an Indian-Italian fusioncookbook which has become a global bestseller. She has beenreceiving annual royalties based on revenues reported by thepublisher. These revenues started at $1 million in the first yearand grew steadily by 5% per year. Her royalty rate has been 15% ofthe revenues. Recently, she hired an auditor who discovered thatthe publisher had been under-reporting the revenues. The book hadactually earned 10% more in annual revenues than had been reportedon her royalty statements. Assuming the publisher pays an interestrate of 4% p.a. on missed annual payments, the money owed by thepublisher is closest to: (a)$136,888. b) $150,634. c) $222,976. d)$245,367