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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

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 $3,400 per month.
b. Remodeling and necessary equipment would cost $312,000. The equipment would have a 20-year life and a $15,600
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 $370,000 per year. Ingredients would
cost 20% of sales.
d. Operating costs would include $77,000 per year for salaries, $4,200 per year for insurance, and $34,000 per year for
utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Incorporated, of 11.0% of sales.
Required:
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 22%, 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.
Prepare a contribution format income statement that shows the expected net operating income each year from the franchise
outlet.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 suitable location in a large shopping mall can be rented for $3,400 per month.
Remodeling and necessary equipment would cost $312,000. The equipment would have a 20-year life and a $15,600 salvage value. Straight-line depreciation would be used, and the salvage value would be considered in computing depreciation.
Based on similar outlets elsewhere, Mr. Swanson estimates that sales would total $370,000 per year. Ingredients would cost 20% of sales.
Operating costs would include $77,000 per year for salaries, $4,200 per year for insurance, and $34,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Incorporated, of 11.0% of sales.
Required:
1-3b:
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 22%, 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?
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