On July 1, 2021, Ghana Company signed an agreement to operate as a franchisee of Fast Foods, Inc. for an initial franchise fee of P6,000,000. Of this amount, P2,000,000 was paid when the agreement was signed and the balance is payable in four equal annual payments. The payment is not refundable and no future services are required for the franchise. Ghana's credit rating indicate that it can borrow money at 14% for a loan of this type. Information on present and future value factors:
On July 1, 2021, Ghana Company signed an agreement to operate as a franchisee of Fast Foods, Inc. for an initial franchise fee of P6,000,000. Of this amount, P2,000,000 was paid when the agreement was signed and the balance is payable in four equal annual payments. The payment is not refundable and no future services are required for the franchise. Ghana's credit rating indicate that it can borrow money at 14% for a loan of this type. Information on present and future value factors:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On July 1, 2021, Ghana Company signed an agreement to operate as a franchisee of Fast Foods, Inc. for an initial franchise fee of P6,000,000. Of this amount, P2,000,000 was paid when the agreement was signed and the balance is payable in four equal annual payments. The payment is not refundable and no future services are required for the franchise. Ghana's credit rating indicate that it can borrow money at 14% for a loan of this type. Information on present and future value factors:
Present value of 1 at 14% for 4 periods - 0.59
Present value of an ordinary annuity of 1 at 14% for 4 periods - 2.91
What is the cost of the franchise acquired on July 1, 2021?
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