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Paul Swanson has anopportunity to acquire a franchise from The Yogurt Place, Inc., todispense frozen yogurt products under The Yogurt Place name. Mr.Swanson has assembled the following information relating to thefranchise:A suitable location in a large shopping mall can be rented for$3,200 per month.Remodeling and necessary equipment would cost $300,000. Theequipment would have a 20-year life and a $15,000 salvage value.Straight-line depreciation would be used, and the salvage valuewould be considered in computing depreciation.Based on similar outlets elsewhere, Mr. Swanson estimates thatsales would total $350,000 per year. Ingredients would cost 20% ofsales.Operating costs would include $75,000 per year for salaries,$4,000 per year for insurance, and $32,000 per year for utilities.In addition, Mr. Swanson would have to pay a commission to TheYogurt Place, Inc., of 15.0% of sales.Required:1. Prepare acontribution format income statement that shows the expected netoperating income each year from the franchise outlet.2-a. Compute thesimple rate of return promised by the outlet.2-b. If Mr. Swansonrequires a simple rate of return of at least 19%, should he acquirethe franchise?3-a. Compute thepayback period on the outlet.3-b. If Mr. Swansonwants a payback of three years or less, will he acquire thefranchise?