+1904 On yesterday's episode of "Shark Tank" on ABC, Kevin O'Leary a.k.a Mr. Wonderful made an offer to a guy that made a product that would turn off electric stoves every time the smoke alarm would sound off; the stove would have to be on and burning the food on the stover to smoking. Anyway, Mr. Wonderful offered the guy a ,\($300,000\) loan for a 10% royality and when the guy paid back \($900,000\), the royalty would go down to 5%. If the guy takes the deal and gets the loan for \($300,000\) and then pays back \($900,000\), what percent of interest would the guy be paying? Please show the answer and explain how you got your answer.
When you say a "$300,000" @ 10% royalty. For how long is the royalty of 10%? In perpetuity? And where does the $900,000 come from?
+1904 The royality of 10% is until the guy pays back a total of \($900,000\) and then the royality goes down to 5%. The \($900,000\) will come from the guy paying back the loan.
Well, IF YOU SAY THE ROYALTY is interest, he is paying back the original 300,000 plus 600,000 more. 100% interest would be 300,000 200% interest would be 600,000 That is 200% interest. But since he continues to pay 5% royalty...which we stated as considered to be interest, he is paying even MORE!
But, O'Leary is offering him a loan of $300,000 @ 10%. It will take the poor borrower 30 years to pay $900,000 in royalties to O'Leary!!. That does NOT make any business sense. Generally speaking, the royalty is paid until the lender gets his "principal", that is, his $300,000 back, then they have to agree on some other arrangement, such as lowering the royalty to 5% after that, or the original agreement comes to an end.
