Problem

1 Initial franchise fee 70,000

Continuing franchise fee
(500 x 5%) 25,000
Total revenue 95,000 A

2 Initial franchise fee

(100,000 /5) 20,000
Continuing franchise fee
(500,000 x 12%) 60,000
Total earned franchise fee 80,000 B

3 Down payment collection

(3,125 x 40%) 1,250,000 1-Jan
PV of notes receivable 30-Jun 468,750
[(1875/4) 468.750 x 3.04] 1,425,000 30-Dec 468,750
Adjusted sales value of initial franchise fee 2,675,000 Total collection applying to principal
Direct cost of services 802,500 down payment
Gross profit 1,872,500 total collection
GPR GPR
(1,872,500/2,675,000) 70% Realized gross profit end

4A

5 Revenue from franchise fee 4,500,000

cost of franchise revenue 500,000
Gross profit 4,000,000
Continuing fee
(2,000 x2%) 40,000
Net income 4,040,000 B

6 annual payment of annuity

(175,000 x 1.6901) 295,767.50
Gross profit interest
(2626,000 x 8%) 210,000
Downpayment 350,000
Total revenue 855,767.50 C
 interest Principal Balance of PV of NR
1,425,000
171,000 297,750 1,127,250
135,270 333,480 793,770
ection applying to principal 631,230
1,250,000
1,881,230
70%
ross profit end 1,316,861 B