14.

Problem 14-19 (Algo) Simple Rate of Return; Payback Period (LO14-1, LO14-6) 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 suitable location in a large shopping mall can be rented for $3,300 per month. b. Remodeling and necessary equipment would cost $306,000. The equipment would have a 15-year life and a $20,400 salvage value. Straight-line depreciation would be used, and the salvage value would be considered in computing depreciation. C. Based on similar outlets elsewhere, Mr. Swanson estimates that sales would total $360,000 per year. Ingredients would cost 20% of sales. d. Operating costs would include $76,000 per year for salaries, $4,100 per year for Insurance, and $33,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Incorporated, of 15.5% of sales. Required: 1. Prepare a contribution format income statement that shows the expected net operating Income each year from the franchise outlet. 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 17%, 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. Reg 1 Reg 2A Reg 2B Req 3A Reg 3B Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet. The Yogurt Place, Incorporated, Contribution Format Income Statement Variable expenses: 0 0 Fixed expenses Complete this question by entering your answers in the tabs below. Req 1 Reg 2A Reg 2B Req 3A Req 3B Compute the simple rate of return promised by the outlet. (Round your answer to 1 decimal place.) Simple rate of return % Complete this question by entering your answers in the tabs below. Req 1 Reg 2A Req 2B Req Req 3B If Mr. Swanson requires a simple rate of return of at least 17%, should he acquire the franchise? Yes Ono Complete this question by entering your answers in the tabs below. Reg 1 Reg 2A Reg 2B Req 3A Req 3B Compute the payback period on the outlet. (Round your answer to 1 decimal place.) Payback period years Complete this question by entering your answers in the tabs below. Req 1 Reg 2A Req 2B Req Req 3B If Mr. Swanson wants a payback of three years or less, will he acquire the franchise? Yes TONO