Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc., 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 $4,000 per month.
b.	Remodeling and necessary equipment would cost $348,000. The equipment would have a 20-year life and an $17,400 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 $430,000 per year. Ingredients would cost 20% of sales.
d.	Operating costs would include $83,000 per year for salaries, $4,800 per year for insurance, and $40,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc., of 14.0% of sales.

Required:

1.

Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet.

PAUL SWANSON
Contribution Format Income Statement
Variable expenses:
		0
		0
Selling and administrative expenses:
		0
		0

2a.

Compute the simple rate of return promised by the outlet. (Round percentage answer to 1 decimal place. i.e. 0.123 should be considered as 12.3%.)

Simple rate of return

%

2b.

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

	Yes
	No

3a.

Compute the payback period on the outlet. (Round your answer to 1 decimal place.)

Payback period

years

3b.

If Mr. Swanson wants a payback of three years or less, will he acquire the franchise?

	Yes
	No