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Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Incorporated, 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 $$72,000$ per year for salaries, $$3,700$ 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, Incorporated, of $13\mathrm{.}5\%$ of sales.

Required:

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 $16\%,$ 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?Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Incorporated, to dispense frozen yogurt products under The Yogurt Place name. Mr$.$ Swanson has assembled the following information relating to the franchise:

A suitable location in a large shopping mall can be rented for $$2,900$ per month.

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.

Based on similar outlets elsewhere, Mr$.$ Swanson estimates that sales would total $$320,000$ per year. Ingredients would cost $20\%$ of sales.

Operating costs would include $$72,000$ per year for salaries, $$3,700$ 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, Incorporated, of $13\mathrm{.}5\%$ of sales.

Required:

$1.$ 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 $16\%,$ 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?

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