Information on four investment proposals is given below: Investment required Present value of cash inflows Net present value Life of the project Investment Proposal - A B D $(120,000) $(50,000) $(50,000) $ (360,000) 169,200 67,300 79,000 476,000 $ 49,200 $ 17,300 $ 29,000 $ 116,000 5 years 7 years 6 years 6 years Required: 1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.) 2. Rank the proposals in terms of preference. Investment Proposal Project Profitability Index Rank Preference Second Third B CI First Fourth Problem 7-19 (Algo) Simple Rate of Return; Payback Period (L07-1, L07-6] Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc., 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 $4,700 per month. b. Remodeling and necessary equipment would cost $390,000. The equipment would have a 10-year life and a $39,000 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 $500,000 per year. Ingredients would cost 20% of sales. d. Operating costs would include $90,000 per year for salaries, $5,500 per year for insurance, and $47,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc., of 14.0% 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 21%, should he acquire the franchise? 3-a. Compute the payback period on the outlet. 3-b. If Mr. Swanson wants a payback of two years or less, will he acquire the franchise? Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet. $ 500,000 The Yogurt Place, Inc., Contribution Format Income Statement Sales Variable expenses: Cost of ingredients $ 100,000 Commissions 70,000 170,000 330,000 Contribution margin Fixed expenses: Rent $ Depreciation Insurance Utilities 56,400 35,100 5,500 47,000 144,000 186,000 Net operating income Req 1 Req 2A Req 2B Req Reg 3B Compute the simple rate of return promised by the outlet. (Round your answer to 1 decimal place.) Simple rate of return 47.7 % Req 1 Req 2A Req 2B Req Req 3B Compute the payback period on the outlet. (Round your answer to 1 decimal place.) Payback period 1.8 X years