4. Please answer asap. Due in the next hour. Thanks Paul Swanson has an opportun

Question

4. Please answer asap. Due in the next hour. Thanks

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 $3,600 per month. b. Remodeling and necessary equipment would cost $324,000. The equipment would have a 15-year life and an $21,600 salvage value. Straight-line depreciation would be used, and the salvage value would be considered in computing depreciation ingredients would cost 20% of sales. per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc, c. Based on similar outlets elsewhere, Mr. Swanson estimates that sales would total $390,000 per year. d. Operating costs would include $79,000 per year for salaries, $4,400 per year for insurance, and $36,000 of 12.0% 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: Selling 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%.) Simple rate of return

Explanation / Answer

Variable Expenses - Cost of ingridients - 20% of sales that are expected to be 390000 = $78000 per year.

Selling administrative expenses -

Rent - 3600 x 12 = $43200

Investment - $324000 one time

Fixed cost per year - 79000 + 4400 + 36000 + 46800 = $166200

Total cost per year - 166200 + 43200 + 78000 = $287400

Total revenue per year - $390000

Profit per year = 390000 - 209400 = $102600

Depreciation per year = (324000 - 26100) / 15 = $19860

Profit after depreciation = $82740

Simple rate of return = 82740 / 324000 = 25.54%

Yes. if the required rate of return is 24% then the franchiee should be accepted as it is giving a higher rate of return.

Payback period = 324000 / 82740 = 3.92 years

No. If the required payback period is to be three or less than three years then the franchisee should not be acqired as the payback period is 3.92 years

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