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.	A suitable location in a large shopping mall can be rented for $3,500 per month.
b.	Remodelling and necessary equipment would cost $270,000. The equipment would have a 15-year life and an $18,000 salvage value. Straight-line depreciation would be used.
c.	On the basis of similar outlets elsewhere, Swanson estimated that sales would total $300,000 per year. Ingredients would cost 20% of sales.
d.	Operating costs would include $70,000 per year for salaries, $3,500 per year for insurance, and $27,000 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%).)

2-b.

If Swanson requires a simple rate of return of at least 12%, should he acquire the franchise?

	Yes
	No

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?

	Yes
	No