Question
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.
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 $5,060 per month.
- Remodelling and necessary equipment would cost $401,000. The equipment would have a 15-year life and an $14,000 salvage value. Straight-line depreciation would be used.
- On the basis of similar outlets elsewhere, Swanson estimated that sales would total $405,000 per year. Ingredients would cost 20% of sales.
- Operating costs would include $105,500 per year for salaries, $3,550 per year for insurance, and $32,400 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 10.0%, should he acquire the franchise?
multiple choice 1
-
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?
multiple choice 2
-
Yes
-
No
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started