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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

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 $3,500 per month.

b.

Remodeling and necessary equipment would cost $182,000. The equipment would have a 10-year life and an $24,000 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 $319,000 per year. Ingredients would cost 19.8% of sales.

d.

Operating costs would include $68,800 per year for salaries, $4,000 per year for insurance, and $26,100 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc., of 10.9% of sales.

 

(Ignore income taxes.)

 

Requirement 1:

Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet. (Input all amounts as positive value. Omit the "$" sign in your response.)

(b)

If Mr. Swanson accepts any project with a simple rate of return greater than 12%, will he acquire the franchise?

Requirement 2: (a)

Compute the simple rate of return promised by the outlet. (Omit the "%" sign in your response. Round your answer to 1 decimal place.)

 

Requirement 3:

(a)

Compute the payback period on the outlet. (Round your answer to 1 decimal place.)

(b) If Mr. Swanson accepts any investment with a payback period of less than four years, will he acquire the franchise?



quote
. . . . . . on accepts any project with a simple rate of return greater than 12%, will he acquire the franchise? Requirement 2: (a) Compute the simple rate of return promised by the outlet. (Omit the "%" sign in your response. Round your answer to 1 decimal place.) Requirement 3: (a) Compute the payback period on the outlet. (Round your. . . . . .
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