Author a Accepts a $5,000 Advance from a Publisher and a 10

question 113

Multiple Choice

Author A accepts a $5,000 advance from a publisher and a 10% royalty after 5,000 books are sold. Author B foregoes the publisher's advance and negotiates for a 15% royalty on all books sold. Author C decides to self-publish his book and keep 100% of all sales revenue. In what order of risk aversion (from most to least) would you rank these authors?

• A)Author A, Author B, Author C
• B)Author A, Author C, Author B
• C)Author B, Author A, Author C
• D)Author C, Author B, Author A

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Definitions:

Premium on Bonds Payable

The excess amount by which bonds are issued over their face value, representing an additional cost of borrowing to the issuer.

Amortization

The method of incrementally expensing the original value of an intangible asset throughout its operational life.

Bond Indenture

A legal contract between a bond issuer and bondholders, detailing the terms and conditions of the bond.

Straight-Line Amortization

A method of calculating the gradual reduction in the cost value of an intangible asset over its useful life in fixed, equal amounts.