Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, In
ID: 2421491 • Letter: P
Question
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 $318,000. The equipment would have a 20-year life and an $15,900 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 $380,000 per year. Ingredients would cost 20% of sales. d. Operating costs would include $78,000 per year for salaries, $4,300 per year for insurance, and $35,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc., of 11.5% of sales. Compute the simple rate of return promised by the outlet. (Round percentage answer to 1 decimal place. i.e. 0.123 should be considered as 12.3%.)Compute the payback period on the outl
Explanation / Answer
Computation of rate of return.
Gross sales 380000
Less : Expenses
A). Cost of sales (20% of 380000) (76000)
B). Depreciation (318000 - 15900)/20 (15105)
( Cost - S.V.)/ life of machine
C). Rent (3500*12) (42000)
D).Operating Cost
1) Salary 78000
2) Insurance 4300
3) Utilities 35000
4) Commission (380000*11.5%) 43700
Total (161000)
Total income during the year 85895
Rate of return (85895/380000)*100 22.6%
( Income / total Sales )
Copmputation of payback period
Payback period : Total cash outflow/ Total cash inflow *12
294105/380000 * 12 = 9.3 Month