Question
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 suitable location in a large shopping mall can be rented for $3,300 per month.
- Remodeling and necessary equipment would cost $306,000. The equipment would have a 15-year life and a $20,400 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 $360,000 per year. Ingredients would cost 20% of sales.
- Operating costs would include $76,000 per year for salaries, $4,100 per year for insurance, and $33,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Incorporated, of 15.5% of sales.
1.
Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet.
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2. Compute the simple rate of return promised by the outlet. (Round your answer to 1 decimal place.)
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3. Compute the payback period on the outlet. (Round your answer to 1 decimal place.)
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