On July 1, 2021, Blue Company signed an agreement to operate as a franchisee for a franchise fee of P5,000,000. Of this amount, P2,000,000 was paid when the agreement was signed and the balance is payable in six semi-annual payments of P500,000 every Dec. 31, and June 30. The first payment was due on Dec. 31, 2021. Blue Company’s credit rating indicates that it can borrow money at 8% per annum for a loan of this type. Information on present value factors (PV) are: PV of an ordinary annuity of 1 at 8% for 3 periods-----------2.5771 PV of an ordinary annuity of 1 at 4% for 6 periods-----------5.2421 What is the cost of Franchise acquired on April 1, 2021?
On July 1, 2021, Blue Company signed an agreement to operate as a franchisee for a franchise fee of P5,000,000. Of this amount, P2,000,000 was paid when the agreement was signed and the balance is payable in six semi-annual payments of P500,000 every Dec. 31, and June 30. The first payment was due on Dec. 31, 2021. Blue Company’s credit rating indicates that it can borrow money at 8% per annum for a loan of this type. Information on present value factors (PV) are: PV of an ordinary annuity of 1 at 8% for 3 periods-----------2.5771 PV of an ordinary annuity of 1 at 4% for 6 periods-----------5.2421 What is the cost of Franchise acquired on April 1, 2021?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On July 1, 2021, Blue Company signed an agreement to operate as a franchisee for a franchise fee of P5,000,000. Of this amount, P2,000,000 was paid when the agreement was signed and the balance is payable in six semi-annual payments of P500,000 every Dec. 31, and June 30. The first payment was due on Dec. 31, 2021. Blue Company’s credit rating indicates that it can borrow money at 8% per annum for a loan of this type. Information on present value factors (PV) are:
PV of an ordinary annuity of 1 at 8% for 3 periods-----------2.5771
PV of an ordinary annuity of 1 at 4% for 6 periods-----------5.2421
What is the cost of Franchise acquired on April 1, 2021?
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