Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Incorporated, to dispense frozen yogurt products

under The Yogurt Place name. He assembled the following information relating to the franchise:

a$.$ A suitable location in a large shopping mall can be rented for $$4,500$ per month.

b$.$ Remodeling and necessary equipment would cost $$378,000.$ The equipment would have a $10-$ year life and a $$37,800$ 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 sales would total $$480,000$ per year. Ingredients would cost $20\%$ of

sales.

d$.$ Annual operating costs would include $$88,000$ for salaries, $$5,300$ for insurance, $$45,000$ for utilities, and a commission paid to

The Yogurt Place, Incorporated, of $13\mathrm{.}0\%$ of sales.

Required:

Prepare a contribution format income statement showing the expected net operating income each year from the franchise.

$2-$a$.$ Compute the simple rate of return promised by the franchise.

$2-$b$.$ If Mr$.$ Swanson requires a simple rate of return of at least $19\%,$ should he acquire the franchise?

$3-$a$.$ Compute the payback period on this investment.

$3-$b$.$ If Mr$.$ Swanson wants a payback of two years or less, will he acquire the franchise?Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Incorporated, to dispense frozen yogurt products under The Yogurt Place name. He assembled the following information relating to the franchise:

A suitable location in a large shopping mall can be rented for $$4,500$ per month.

Remodeling and necessary equipment would cost $$378,000.$ The equipment would have a $10-$year life and a $$37,800$ 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 sales would total $$480,000$ per year. Ingredients would cost $20\%$ of sales.

Annual operating costs would include $$88,000$ for salaries, $$5,300$ for insurance, $$45,000$ for utilities, and a commission paid to The Yogurt Place, Incorporated, of $13\mathrm{.}0\%$ of sales.

Required:

$1.$ Prepare a contribution format income statement showing the expected net operating income each year from the franchise.

$2-$a$.$ Compute the simple rate of return promised by the franchise.

$2-$b$.$ If Mr$.$ Swanson requires a simple rate of return of at least $19\%,$ should he acquire the franchise?

$3-$a$.$ Compute the payback period on this investment.

$3-$b$.$ If Mr$.$ Swanson wants a payback of two years or less, will he acquire the franchise?