
Tutorial
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 10year life and an $24,000 salvage value. Straightline
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.

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?  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 ( & 1 attachments).    Quention_No._15_Solution.docx (34KB)     

