Question

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? (1 point) Responses 15 years 15 years 25 years 25 years 30 years 30 years 32 years 32 years 35 years

Answer 1

To determine how long the franchise agreement is valid based on the given amortization expense, we can use the following formula:

\[ \text{Amortization Expense} = \frac{\text{Total Cost}}{\text{Useful Life}} \]

In this case, the total cost of the franchise license is $25,000, and the first year’s amortization expense is $833. We can rearrange the formula to find the useful life of the franchise:

\[ \text{Useful Life} = \frac{\text{Total Cost}}{\text{Amortization Expense}} = \frac{25000}{833} \approx 30 \]

Therefore, the franchise agreement will be valid for approximately 30 years before it expires.