TO: SHRAVAN H.

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. (ive started it but its not complete and im not sure if im correct)

The Yogurt Place, Inc.
Contribution Format Income Statement
Sales		$430,000
Variable expenses:
Commissions	$60,200
Contribution margin
Fixed expenses:
Depreciation	$16,530
Salaries	830,000
Insurance	4,800
Utilities	40,000
		891,330
Net operating income		(521,530)

2. Compute the simple rate of return promised by the outlet

Simple rate of return

%

3. Compute the payback period on the outlet

Payback period

years