60.1K

Verified Solution

Link Copied!

Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Incorporated, to dispense frozen yogurt products under The Yogurt Place name. Mr. Swanson has assembled the following information relating to the franchise: a. A sultable location in a large shopping mall can be rented for $2,900 per month. b. Remodeling and necessary equipment would cost $282,000. The equipment would have a 20-year life and a $14,100 salvage value. Straight-line depreciation would be used, and the salvage value would be considered in computing depreciation. c. Based on similar outlets elsewhere. Mt. Swanson estimates that sales would total $320,000 per year. Ingredients would cost 20% of sales. d. Operating costs would include $72,000 per year for salaries, $3,700 per year for insurance, and $29,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Incorporated, of 13.5% of sales. Required: 1. Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outiet. 2-a. Compute the simple rate of return promised by the outlet. 2-b. If Mr. Swanson requires a simple rate of return of at least 16%, should he acquire the franchise? 3-a. Compute the payback period on the outlet. 3-b. If Mr. Swanson wants a payback of three years or less, will he acquire the franchise? Complete this question by entering your answers in the tabs below. Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet. Compute the simple rate of return promised by the outlet. (Round your answer to 1 decimal place.) Compute the payback period on the outlet. (Round your answer to 1 decimal place.)

Answer & Explanation Solved by verified expert

See Answer