Reference no: EM132762477
Question - At the beginning of the year 2019, MR. HAN got the franchise of ORANGE RESTO, a known restaurant of upscale patronage.
The franchise agreement required a 5,000,000 franchise fee, 1,000,000 is payable upon signing of the franchise and the balance in four annual instalments starting the end of the current year. Using a 12 percent (12%) present value discount rate, the four instalments would approximate 3,037,350. The fees once paid are not refundable.
The franchise may be cancelled subject to provisions of the agreement. Should there be unpaid franchise fee attributed to the balance of the main fee 5,000,000, the same would become due and demandable upon cancellation.
Further, the franchiser is entitled a 5 percent (5%) fee on gross sales payable monthly within the first ten days of the following month. The Credit Investigation Bureau rated MR. HAN a 1+ credit rating. The balance of the franchise fee was guaranteed by a commercial bank. The first year of operations yielded gross sales of 90 million.
Required - Determine ORANGE RESTO's earned franchise fees for the first year of operations?
a) 8,537,350
b) 9,500,000
c) 5,000,000
d) 4,037,350
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