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...


1. 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 18%, 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?


Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc., to dispense frozen yogurt products under The<br>Yogurt Place name. Mr. Swanson has assembled the following information relating to the franchise:<br>a. A suitable location in a large shopping mall can be rented for $5,000 per month.<br>b. Remodeling and necessary equipment would cost $408,000. The equipment would have a 20-year life and a $20,400 salvage<br>value. Straight-line depreciation would be used, and the salvage value would be considered in computing depreciation.<br>c. Based on similar outlets elsewhere, Mr. Swanson estimates that sales would total $530,000 per year. Ingredients would cost 20% of<br>sales.<br>d. Operating costs would include $93,000 per year for salaries, $5,800 per year for insurance, and $50,000 per year for utilities. In<br>addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc., of 15.5% of sales.<br>

Extracted text: 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 $5,000 per month. b. Remodeling and necessary equipment would cost $408,000. The equipment would have a 20-year life and a $20,400 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 $530,000 per year. Ingredients would cost 20% of sales. d. Operating costs would include $93,000 per year for salaries, $5,800 per year for insurance, and $50,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc., of 15.5% of sales.

Jun 06, 2022
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