Problem 7-19 (Algo) Simple Rate of Return; Payback Period [LO7-1, LO7-6]
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:
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 two years or less, will he acquire the franchise?
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Part 1 | ||||
Sales | $ 460,000 | |||
Less: Variable Expense | ||||
Cost of ingredients (20% × $460,000) | $ 92,000 | |||
Commissions (12% × $460,000) | $ 55,200 | $ (147,200) | ||
Contribution margin | $ 312,800 | |||
Less: Fixed Expenses: | ||||
Salaries | $ 86,000 | |||
Rent ($4,300 × 12) | $ 51,600 | |||
Depreciation ($366,000-$18,300)/20 | $ 17,385 | |||
Insurance | $ 5,100 | |||
Utilities | $ 43,000 | $ (203,085) | ||
Net operating income | $ 109,715 | |||
Part 2a | ||||
Annual Net Operating Income | a | $ 109,715 | ||
Initial Investment | b | $ 366,000 | ||
Simple rate of return | a/b | 29.98% | ||
Part 2b | ||||
Yes, since return is more than required return. | ||||
Part 3a | ||||
Annual Net Operating Income | $ 109,715 | |||
Add: Depreciation | $ 17,385 | |||
Annula Net cash inflow | a | $ 127,100 | ||
Initial Investment | b | $ 366,000 | ||
Payback Period | b/a | 2.88 | Years | |
Part 3b | ||||
No since payback is more than required |
Problem 7-19 (Algo) Simple Rate of Return; Payback Period [LO7-1, LO7-6] Paul Swanson has an opportunity...
Problem 7-19 (Algo) Simple Rate of Return; Payback Period [LO7-1, LO7-6] 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 $5,000 per month. b. Remodeling and necessary equipment would cost $408,000. The equipment would have a 20-year life and a $20,400...
Problem 7-19 (Algo) Simple Rate of Return; Payback Period (LO7-1, LO7-6] 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 $5,100 per month. b. Remodeling and necessary equipment would cost $414,000. The equipment would have a 15-year life and a $27,600...
Please show work, Thank you!
Problem 7-19 (Algo) Simple Rate of Return; Payback Period (LO7-1, LO7-6] 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 $4,300 per month. b. Remodeling and necessary equipment would cost $366,000. The equipment would have a...
Problem 12-19 Simple Rate of Return; Payback Period [LO12-1,
LO12-6]
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 suitable location in a large shopping mall can be rented for
$3,500 per month.
Remodeling and necessary equipment would cost $270,000. The
equipment would have a 15-year life and an $18,000 salvage value.
Straight-line...
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 $5,000 per month b. Remodeling and necessary equipment would cost $408.000. The equipment would have a 20-year life and a $20,400...
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 $3,500 per month 000. The equipment would have a 15-year life and an $18,000 salvage value. Straight-line depreciation would be used, and the salvage value would be considered in computing depreciation C....
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 $4,200 per month. b. Remodeling and necessary equipment would cost $360,000. The equipment would have a 15-year life and a $24,000 salvage value. Straight-line depreciation would be used, and the salvage value...
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 $3,500 per month b. Remodeling and necessary equipment would cost $270,000. The equipment would have a 15-year life and an $18,000 salvage value. Straight-line depreciation would be used, and the salvage value...
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 $3,100 per month. b. Remodeling and necessary equipment would cost $294,000. The equipment would have a 20-year life and a $14,700 salvage value. Straight-line depreciation would be used, and the salvage value...
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 $3,000 per month. b. Remodeling and necessary equipment would cost $288,000. The equipment would have a 15-year life and a $19,200 salvage value. Straight-line depreciation would be used, and the salvage value...