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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.

 Jan 6, 2016
edited by gibsonj338  Jan 6, 2016
edited by gibsonj338  Jan 6, 2016
 #1
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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?

 Jan 6, 2016
 #2
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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.

 Jan 6, 2016
 #3
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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!

 Jan 6, 2016
edited by Guest  Jan 6, 2016
 #4
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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. 

 Jan 6, 2016

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