Inez and Sofia opened a clothing store franchise after securing a $25,000 franchise license. After their license expires, it won't be worth anything unless they choose to renew.
Inez lists the first year's amortization expense of the franchise agreement as $833. How long will the franchise agreement be valid before it expires?
The total cost of the franchise license is $25,000 and the first year's amortization expense is $833. To find out how long the franchise agreement will be valid before it expires, we can divide the total cost of the franchise license by the first year's amortization expense:
$25,000 / $833 ≈ 30 years
Therefore, the franchise agreement will be valid for 30 years before it expires.