Problem 2 (15 Marks) Sandra Robinson is considering opening an ice cream store. One option is to purchase an existing independent store that is available for sale. The seller, George Clark, has operated the store for above years and has assured Sandra that his location, although smaller than the average store, is an his so-average performer for the industry, George has provided the financial data shown below for GEORGE'S ICE CREAM PLUS STORE Selected Financial Results Store size: 1,210 square feet Sales Gross margin Other expenses Net income Year 1 Year 2 Year 3 $247,000 $281,000 $332,000 174,000 199,000 240,000 150,000 188,000 207,000 $24,000 $11,000 $33,000 Sandra has approached you to help her decide. You find the following information on the website of Creamy Ice Cream, a franchisor of similar outlets: The average store is 1,560 square feet and contains 6 ice cream machines, a topping bar, and seating for 20. Sales average $411,000 for stores in their first year and $651,000 for a mature store. It usually takes three years for a store to mature. Gross margins on start-up average 70% and normally increase to 75% for established locations. Operating costs start at 50% and drop to 43% of sales for mature stores as the fixed costs are spread out. The initial investment for a 1,560-square-foot store is $358,000 for machines, franchise fees, and other capital costs, plus $53,000 for liquid assets including inventory. Franchisees are expected to invest two-thirds of the required investment in equity and arrange to borrow the remaining one-third. You recall that in retail a key statistic is sales per square foot, and you make a note to yourself to factor the different store sizes into your analysis.