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: A suitable location in a large shopping mall can be rented for $4,640 per month. Remodelling and necessary equipment would cost $339,000. The equipment would have a 15-year life and an $12,000 salvage value. Straight-line depreciation would be used. On the basis of similar outlets elsewhere, Swanson estimated that sales would total $348,000 per year. Ingredients would cost 20% of sales. Operating costs would include $79,000 per year for salaries, $8,300 per year for insurance, and $30,200 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.

2-a. 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 8.0%, should he acquire the franchise?

multiple choice 1

3-a. Compute the payback period on the outlet. (Round your answer to 1 decimal place.)

3-b. If Swanson wants a payback of four years or less, will he acquire the franchise?

multiple choice 2

• Yes

• No

• Yes

• No

JOE SWANSON Income Statement Deduct: Operating expenses: Total operating expenses 0