Joe Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc. to dispense frozen yogurt products under the name The Yogurt Place. Swanson has assembled the following information relating to the franchise: a. A suitable location in a large shopping mall can be rented for $5,480 per month. b. Remodelling and necessary equipment would cost $337,500. The equipment would have a 15-year life and an $10,500 salvage value. Straight-line depreciation would be used. c. On the basis of similar outlets elsewhere, Swanson estimated that sales would total $440,000 per year. Ingredients would cost 20% of sales. d. Operating costs would include $143,500 per year for salaries, $5,600 per year for insurance, and $30,500 per year for utilities. In addition, Swanson would have to pay a commission to The Yogurt Place of 12.5% of sales. Required: 1. Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet. Deduct: Operating expenses: Total operating expenses Simple rate of return 2-a. Compute the simple rate of return promised by the outlet. (Round your answer to 2 decimal places. (i.e., 0.1234 should be considered as 12.34%).) JOE SWANSON Income Statement. O Yes O No 2-b. If Swanson requires a simple rate of return of at least 6.5%, should he acquire the franchise? Payback period % 0 3-a. Compute the payback period on the outlet. (Round your answer to 1 decimal place.) O Yes O No years 3-b. If Swanson wants a payback of four years or less, will he acquire the franchise?
Joe Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc. to dispense frozen yogurt products under the name The Yogurt Place. Swanson has assembled the following information relating to the franchise: a. A suitable location in a large shopping mall can be rented for $5,480 per month. b. Remodelling and necessary equipment would cost $337,500. The equipment would have a 15-year life and an $10,500 salvage value. Straight-line depreciation would be used. c. On the basis of similar outlets elsewhere, Swanson estimated that sales would total $440,000 per year. Ingredients would cost 20% of sales. d. Operating costs would include $143,500 per year for salaries, $5,600 per year for insurance, and $30,500 per year for utilities. In addition, Swanson would have to pay a commission to The Yogurt Place of 12.5% of sales. Required: 1. Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet. Deduct: Operating expenses: Total operating expenses Simple rate of return 2-a. Compute the simple rate of return promised by the outlet. (Round your answer to 2 decimal places. (i.e., 0.1234 should be considered as 12.34%).) JOE SWANSON Income Statement. O Yes O No 2-b. If Swanson requires a simple rate of return of at least 6.5%, should he acquire the franchise? Payback period % 0 3-a. Compute the payback period on the outlet. (Round your answer to 1 decimal place.) O Yes O No years 3-b. If Swanson wants a payback of four years or less, will he acquire the franchise?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Joe Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc. to dispense frozen yogurt products under the name
The Yogurt Place. Swanson has assembled the following information relating to the franchise:
a. A suitable location in a large shopping mall can be rented for $5,480 per month.
b. Remodelling and necessary equipment would cost $337,500. The equipment would have a 15-year life and an $10,500 salvage
value. Straight-line depreciation would be used.
c. On the basis of similar outlets elsewhere, Swanson estimated that sales would total $440,000 per year. Ingredients would cost 20%
of sales.
d. Operating costs would include $143,500 per year for salaries, $5,600 per year for insurance, and $30,500 per year for utilities. In
addition, Swanson would have to pay a commission to The Yogurt Place of 12.5% of sales.
Required:
1. Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet.
Deduct: Operating expenses:
Total operating expenses
Simple rate of return
2-a. Compute the simple rate of return promised by the outlet. (Round your answer to 2 decimal places. (i.e., 0.1234 should be
considered as 12.34%).)
JOE SWANSON
Income Statement
O Yes
O No
2-b. If Swanson requires a simple rate of return of at least 6.5%, should he acquire the franchise?
Payback period
%
0
3-a. Compute the payback period on the outlet. (Round your answer to 1 decimal place.)
O Yes
O No
years
3-b. If Swanson wants a payback of four years or less, will he acquire the franchise?
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