Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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 $4,900 per month.
Remodeling and necessary equipment would cost $402,000. The equipment would have a 20-year life and a $20,100 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 $520,000 per year. Ingredients would cost 20% of sales.
Operating costs would include $92,000 per year for salaries, $5,700 per year for insurance, and $49,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Incorporated, of 15.0% 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.
2-b. If Mr. Swanson requires a simple rate of return of at least 20%, should he acquire the franchise?
3-a. Compute the payback period on the outlet.
3-b. If Mr. Swanson wants a payback of two years or less, will he acquire the franchise?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Information Systems

Authors: Marshall B. Romney, Paul J. Steinbart

14th edition

134474023, 978-0134474021

More Books

Students also viewed these Accounting questions

Question

Where do you see the organization in 5/10 years?

Answered: 1 week ago

Question

What is an activity rate?

Answered: 1 week ago