90.2K

Verified Solution

Link Copied!

Old MathJax webview

check and solve rest parts

Joe Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc. to dispense frozen yogurt products under the name The Yogurt Place. Swanson has assembled the following information relating to the franchise: 28 a. A suitable location in a large shopping mall can be rented for $4,600 per month. b. Remodelling and necessary equipment would cost $356,500. The equipment would have a 15-year life and an $19,000 salvage value. Straight-line depreciation would be used. c. On the basis of similar outlets elsewhere, Swanson estimated that sales would total $522,000 per year. Ingredients would cost 20% of sales. d. Operating costs would include $192,000 per year for salaries, $7,700 per year for insurance, and $28,500 per year for utilities. In addition, Swanson would have to pay a commission to The Yogurt Place of 12.5% of sales. Required: 1. Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet. JOE SWANSON Income Statement Sales revenue $ 522,000 Deduct Operating expenses Commission Operating costs Commission Ingredients Rent 65,250 192,000 7,700 28,500 55,200 22,500 Depreciation Total operating expenses Net income 371,150 $ 150,850 2-8. Compute the simple rate of return promised by the outlet. (Round your answer to 2 decimal places. (i.e., 0.1234 should be considered as 12.34%).) Simple rate of return % 2-b. If Swanson requires a simple rate of return of at least 11.5%, should he acquire the franchise? Yes O No 3-a. Compute the payback period on the outlet. (Round your answer to 1 decimal place.) Payback period years 3-b. If Swanson wants a payback of four years or less, will he acquire the franchise? Yes O No

Answer & Explanation Solved by verified expert

See Answer