On January 2015, Ms. Jao entered into a franchise agreement with Dav Company. The

agreement provides for an initial franchise fee of 10million, payable as follows: 6million cash to

be paid upon signing of contract and the balance is evidenced by non-interest bearing note in

four equal annual installments Every December 31 starting December 31, 2015. The credit rate

of Jao indicates that she can borrow money at 14% interest. The agreement further provides

that the franchisee must pay a continuing franchise fee equal to 6% of its monthly gross sales.

Dav incurred direct cost of services rendered of 2,000,000 and indirect costs of 50,000. The

franchiseof Ms. Jao started on July 1, 2015 and was able to generate sales amounting to

5million as of 2015.

1. Assuming the collectability of note is not assured, how much is the net income for the

year 2015?

2. Assuming the collectability of note is assured, how much is the net income for the year

2015?