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Problem 14-19 (Algo) Simple Rate of Return; Payback Period [LO14-1, LO14-6] Paul Swanson has an opportunlty to acquire a franchlse from The Yogurt Place, Incorporated, to dispense frozen yogurt products under The Yogurt Place name. He assembled the following Information relating to the franchise: a. A sultable location in a large shopping mall can be rented for $3,900 per month. b. Remodeling and necessary equipment would cost $342,000. The equlpment would have a 15-year life and a $22,800 salvage value. Straight-line depreclation would be used, and the salvage value would be considered in computing depreclation. c. Based on similar outlets elsewhere, Mr. Swanson estimates sales would total $420,000 per year. Ingredients would cost 20% of sales. d. Annual operating costs would Include $82,000 for salarles, $4,700 for Insurance, $39,000 for utillitles, and a commlssion pald to The Yogurt Place, Incorporated, of 13.5% of sales. Required: 1. Prepare a contribution format Income statement showing the expected net operating income each year from the franchise. 2 -a. Compute the simple rate of return promised by the franchise. 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 perlod on this Investment. 3-b. If Mr. Swanson wants a payback of three years or less, will he acquire the franchlse? Complete this question by entering your answers in the tabs below

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