Simon Co. charges an initial franchise fee of $690,000, with $150,000 paid when

Question

Simon Co. charges an initial franchise fee of $690,000, with $150,000 paid when the agreement is signed and the balance in five annual payments. The present value of the future payments, discounted at 10%, is $409,404. The franchisee has the option to purchase $90,000 of equipment for $72,000. Simon has substantially provided all initial services required and collectability of the payments is reasonably assured. The amount of revenue from franchise fees is
a. $150,000.
b. $541,404.
c. $559,404.
d. $690,000.

Explanation / Answer

b. $541,404.

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