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At the beginning of the current year, Seashore Company signed an agreement to operate as...

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Accounting

At the beginning of the current year, Seashore Company signed an agreement to operate as a franchise for an initial franchise fee of P6,000,000.

On the same date, the entity paid P2,000,000 and agreed to pay the balance in four equal annual payments of P1,000,000 at every year-end.

The down payment is not refundable and no future services are required of the franchisor. The entity can borrow at 14% for a loan of this type.

Present value of 1 at 14% for 4 periods 0.59

Future amount of 1 at 14% for 4 periods 1.69

Present value of an ordinary annuity of 1 at 14% for 4 periods 2.91

What is the initial measurement of the franchise?

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