Q4.....

Problem 7-19 (Algal Simple Rate of Return; Payback Period [LOT-1, LOT-6] Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place. lnc.. 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 $2,900 per month. b. Remodeling and necessary equipment would cost $282,000. The equipment would have a 20-year life and a $14,100 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 $320,000 per year. Ingredients would cost 20% of sales. d. Operating costs would include $22,000 per year for salaries, $3,200 per year for insurance, and $29,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc., of 13.5% of sales. Requlred: 'l. 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 1695, should he acquire the franchise? 3-a. Compute the payback period on the outlet. 3-b. If Mr. Swanson wants a payback of three years or less, will he acquire the franchise