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 $$5,100$ per month.

b$.$ Remodeling and necessary equipment would cost $$414,000.$ The equipment would have a $15-$year life and a $$27,600$

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 $$540,000$ per year. Ingredients

would cost $20\%$ of sales.

d$.$ Operating costs would include $$94,000$ per year for salaries, $$5,900$ per year for insurance, and $$51,000$ per year for

utilities. In addition, Mr$.$ Swanson would have to pay a commission to The Yogurt Place, Incorporated, of $16\mathrm{.}0\%$ 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 $19\%,$ 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?

Answer is not complete.

Complete this question by entering your answers in the tabs below.

Req $1$

Req $2A$

Req $2$B

Req $3$A

Req $3$B

Prepare a contribution format income statement that shows the expected net operating

income each year from the franchise outlet.