1.00 points Paul Swanson has an opportunity to acquire a franchise from The Yogu

Question

1.00 points 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 an $20,400 salvage value. Straight-line depreciation would be used, and the salvage value would be considered in computing depreciation Based on similar outlets elsewhere, Mr. Swanson estimates that sales would total $530,000 per year Ingredients would cost 20% of sales C. d. Operating costs would include S93,000 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. Required: 1. Prepare a contribution format income statement that shows the expected net operating income each vear from the franchise outlet. PAUL SWANSON Contribution Format Income Statement Variable expenses: Sellng and administrative expenses 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%.) rate of return 2b. If Mr Swanson requires a simple rate of return of at least 18%, should he acquire the franchise? O Yes O No 3a. Compute the payback period on the outlet. (Round your answer to 1 decimal place.) years 3b. If Mr. Swanson wants a payback of two years or less, will he acquire the franchise? O Yes O No

Explanation / Answer

Income Statement Particular Amount Amount Sales Revenue $530,000 Less: Variable Expense Ingredient @20% Sale $106,000 Sales Comission @ 15.5% of Sales' $82,150 $188,150 Contribution $341,850 Less:Fixed Expense Salaries $93,000 Insurance $5,800 utilities $50,000 Rent $60,000 Depreciation ($408000-20400)/20 $19,380 $228,180 Income from Operation $113,670 2(a): Simple Rate of Return: Income/Cost of Asset =($113670/$408000)*100=27.86% 2(b): Yes Since Actual Rate of Return Exceed Required rate of return 3(a): Payback period: Investment/Income =$408000/113670=3.589 Year

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