Question

Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc., to dispense...

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 suitable location in a large shopping mall can be rented for $3,400 per month. Remodeling and necessary equipment would cost $312,000. The equipment would have a 20-year life and a $15,600 salvage value. Straight-line depreciation would be used, and the salvage value would be considered in computing depreciation. Based on similar outlets elsewhere, Mr. Swanson estimates that sales would total $370,000 per year. Ingredients would cost 20% of sales. Operating costs would include $77,000 per year for salaries, $4,200 per year for insurance, and $34,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc., of 11.0% 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 22%, 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?

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc., to dispense...
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 suitable location in a large shopping mall can be rented for $4,000 per month. Remodeling and necessary equipment would cost $348,000. The equipment would have a 20-year life and a $17,400 salvage value. Straight-line depreciation would be used, and the salvage value would be...
Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc., to dispense...
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 suitable location in a large shopping mall can be rented for $3,200 per month. Remodeling and necessary equipment would cost $300,000. The equipment would have a 20-year life and a $15,000 salvage value. Straight-line depreciation would be used, and the salvage value would be...
Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc., to dispense...
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 suitable location in a large shopping mall can be rented for $3,600 per month. Remodeling and necessary equipment would cost $324,000. The equipment would have a 15-year life and a $21,600 salvage value. Straight-line depreciation would be used, and the salvage value would be...
Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc., to dispense...
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 $4,500 per month. b. Remodeling and necessary equipment would cost $378,000. The equipment would have a 10-year life and an $37,800 salvage value. Straight-line depreciation would be used, and the salvage...
Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc., to dispense...
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 suitable location in a large shopping mall can be rented for $5,200 per month. Remodeling and necessary equipment would cost $420,000. The equipment would have a 20-year life and a $21,000 salvage value. Straight-line depreciation would be used, and the salvage value would be...
Ursus, Inc., is considering a project that would have a eleven-year life and would require a...
Ursus, Inc., is considering a project that would have a eleven-year life and would require a $1,848,000 investment in equipment. At the end of eleven years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows (Ignore income taxes.): Sales $ 2,100,000 Variable expenses 1,400,000 Contribution margin 700,000 Fixed expenses: Fixed out-of-pocket cash expenses $ 370,000 Depreciation 168,000 538,000 Net operating income $ 162,000 Click here to...
Ursus, Inc., is considering a project that would have a ten-year life and would require a...
Ursus, Inc., is considering a project that would have a ten-year life and would require a $2,552,000 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows (Ignore income taxes.): Sales $ 2,400,000 Variable expenses 1,550,000 Contribution margin 850,000 Fixed expenses: Fixed out-of-pocket cash expenses $ 270,000 Depreciation 255,200 525,200 Net operating income $ 324,800 Click here to...
Ursus, Inc., is considering a project that would have a five-year life and would require a...
Ursus, Inc., is considering a project that would have a five-year life and would require a $1,650,000 investment in equipment. At the end of five years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows (Ignore income taxes.):    Sales $ 2,600,000 Variable expenses 1,650,000 Contribution margin 950,000 Fixed expenses: Fixed out-of-pocket cash expenses $ 400,000 Depreciation 330,000 730,000 Net operating income $ 220,000 All of...
Ursus, Inc., is considering a project that would have a five-year life and would require a...
Ursus, Inc., is considering a project that would have a five-year life and would require a $775,000 investment in equipment. At the end of five years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows (Ignore income taxes.): Sales $ 1,900,000 Variable expenses 1,300,000 Contribution margin 600,000 Fixed expenses: Fixed out-of-pocket cash expenses $ 350,000 Depreciation 155,000 505,000 Net operating income $ 95,000 Click here to...
(Ignore income taxes in this problem.) Ursus Inc., is considering a project that would have a...
(Ignore income taxes in this problem.) Ursus Inc., is considering a project that would have a ten-year life and would require a $1,000,000 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows: Sales $2,000,000 Variable Expenses $1,400,000 Contribution Margin $600,000 Fixed Expenses $400,000 Net Operating Income $200,000 All of these items, except for depreciation of $92,500 a...