Question

1. Prepare a contribution format income statement that shows the expected net operation income each year from the franchise outlet.

2-a Compute simple rate of return promised by outlet

2-b If Swanson requires a simple rate of return of at least 20%, should he acquire the franchise?

3-a Compute payback period of the outlet

3-b If Swanson wants a payback of three years or less, will he acquire the franchise?

1 EOC 27pts Problem 7-19 (Algo) Simple Rate of Return; Payback Period (L07-1, L07-6) 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 $4,100 per month b. Remodeling and necessary equipment would cost $354,000. The equipment would have a 20-year life and a $17700 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 $440,000 per year. Ingredients would cost 20% of sales d. Operating costs would include $84,000 per year for salaries, $4.900 per year for insurance, and $41.000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc., of 14.5% of sales Required: 1. Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet 2-a. Compute the simple rate of return promised by the outlet 2-b. if Mr. Swanson requires a simple rate of return of at least 20%, should he acquire the franchise? 3-a. Compute the payback period on the outlet 3-b. If Mr. Swanson wants a payback of three years or less, will he acquire the franchise? Complete this question by entering your answers in the tabs below. Reg RAG 2A Reg 20 RA Reg 30 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 Variable expenses < Prey 3 of 3 !! Next >

Answer 1

Contribution Format Income Statement
Sales Revenue	440,000
Less: Variable costs
Ingredients	88,000
Commission	63,800
Total variable cost	151,800
Contribution Margin	288,200
Less: Fixed costs
Rent	49,200
Depreciation	16,815
Salaries	84,000
Insurance	4,900
Utilities	41,000
Total fixed costs	195,915
Operating Income	92,285
Simple rate of return = Operating Income/Average Investment
=92285/185850
49.656%
Yes
Payback period = Initial Investment/Annual Inflows
=354000/(92,285+16815)
3.244729606		Years
No, since payback peirod is higher than 3 years