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 $$3,000$ per month.

Remodeling and necessary equipment would cost $$288,000.$ The equipment would have a $15-$year life and a $$19,200$ 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 $$330,000$ per year. Ingredients would cost $20\%$ of sales.

Operating costs would include $$73,000$ per year for salaries, $$3,800$ per year for insurance, and $$30,000$ per year for utilities. In addition, Mr$.$ Swanson would have to pay a commission to The Yogurt Place, Incorporated, of $14\mathrm{.}0\%$ 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 $17\%,$ 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?

Answer rating: 100% (QA)

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