Part i have filled out is correct value 0.00 points Paul Swanson has an opportun

Question

Part i have filled out is correct

value 0.00 points 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 $4,000 per month b. Remodeling and necessary equipment would cost $348,000. The equipment would have a 20-year life and an $17,400 salvage value. Straight-line depreciation would be used, and the salvage value would be considered in computing depreciation Ingredients would cost 20% of sales per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc. c. Based on similar outlets elsewhere, Mr. Swanson estimates that sales would total $430,000 per year. d. Operating costs would include $83,000 per year for salaries, $4,800 per year for insurance, and $40,000 of 14.0% of sales Required 1. Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet The Yogurt Place, Inc. Contribution Format Income Statement Sales $ 430,000 Variable expenses 60,200 86,000 Commissions Cost of ingredients 146,200 Contribution margin Fixed expenses 283,800 Depreciation Salaries Insurance Utilities 16,530 83,000 4,800 40,000 144,330 et operating income 139,470

Explanation / Answer

2a.

Simple rate of return: Net Operating Income/Investment required=139470/348000=40%

2b.

if requried return is 19%, should be acquired as actural return is 40%

3a. Payback period

Investmetn Required/Annual Cash Flow (annual cash flow=Inome from operation+Dep)

348000/(139470+16530)=2.23 Year

3b. If required payback is 3 year, Mr, Swanson should acquire franchise as actual payback (2.23) is lesser than what is required.

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