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 $$3,500$ per month.

b$.$ Remodeling and necessary equipment would cost $$318,000.$ The equipment would have a $20-$year life and a $$15,900$ 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 $$380,000$ per year. Ingredients would cost $20\%$ of

sales.

d$.$ Annual operating costs would include $$78,000$ for salaries, $$4,300$ for insurance, $$35,000$ for utilities, and a commission paid to

The Yogurt Place, Incorporated, of $11\mathrm{.}5\%$ 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 $23\%,$ should he acquire the franchise?

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

$3-$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 showing the expected net operating income each year from the franchise.