On July 1, Year 4, Ahmed signed an agreement to operate as a franchisee of Teacake Pastries, Inc., for an initial franchise fee of $240,000. On the same date, Ahmed paid $80,000 and agreed to pay the balance in four equal annual payments of $40,000 beginning July 1, Year 5. The down payment is not refundable, and no future services are required of the franchisor. Ahmed can borrow at 14% for a loan of this type.