4. Please answer asap. Due in the next hour. Thanks Paul Swanson has an opportun
ID: 470182 • Letter: 4
Question
4. Please answer asap. Due in the next hour. Thanks
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 $3,600 per month. b. Remodeling and necessary equipment would cost $324,000. The equipment would have a 15-year life and an $21,600 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 $390,000 per year. d. Operating costs would include $79,000 per year for salaries, $4,400 per year for insurance, and $36,000 of 12.0% of sales. Required: 1. Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet. PAUL SWANSON Contribution Format Income Statement Variable expenses: Selling and administrative expenses: 2a. 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%.) Simple rate of returnExplanation / Answer
Variable Expenses - Cost of ingridients - 20% of sales that are expected to be 390000 = $78000 per year.
Selling administrative expenses -
Rent - 3600 x 12 = $43200
Investment - $324000 one time
Fixed cost per year - 79000 + 4400 + 36000 + 46800 = $166200
Total cost per year - 166200 + 43200 + 78000 = $287400
Total revenue per year - $390000
Profit per year = 390000 - 209400 = $102600
Depreciation per year = (324000 - 26100) / 15 = $19860
Profit after depreciation = $82740
Simple rate of return = 82740 / 324000 = 25.54%
Yes. if the required rate of return is 24% then the franchiee should be accepted as it is giving a higher rate of return.
Payback period = 324000 / 82740 = 3.92 years
No. If the required payback period is to be three or less than three years then the franchisee should not be acqired as the payback period is 3.92 years