Compute the payback period on the outlet

Reference no: EM132031167

Question: 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 $3,300 per month.

b. Remodeling and necessary equipment would cost $306,000. The equipment would have a 15-year life and an $20,400 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 $360,000 per year. Ingredients would cost 20% of sales.

d. Operating costs would include $76,000 per year for salaries, $4,100 per year for insurance, and $33,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc., of 15.5% of sales.

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

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%.)

2b. If Mr. Swanson requires a simple rate of return of at least 17%, should he acquire the franchise?

3a. Compute the payback period on the outlet. (Round your answer to 1 decimal place.)

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

Reference no: EM132031167

Questions Cloud

Determine the net present value of the profit : A paving company is buying two pavement recycling machines for $400k each with a service life of 7 years. They are estimating that there are 3 possible levels.

What is the value of the stock today : Elliott's last dividend was $1.60 and the required rate of return on the stock is 7%. What is the value of the stock today?

What was the return for the year : A particular stock has a dividend yield of 1.2 percent. Last year, the stock price fell from $73 to $57. What was the return for the year?

Find the new cost of equity : A firm has a cost of equity of 10% with an EBIT of a 100, which currently has no debt. Looking to find the new cost of equity if they changed to using a capital

Compute the payback period on the outlet : Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc., to dispense frozen yogurt products under The Yogurt Place name.

Develop a product service idea based on the nature : Capture an spam Email message. View the Email header and copy the information to your assignment document. Only one email is necessary.

How many shares will be used to calculated earnings : MMM Inc. issued 8,000 shares on May 1 and an additional 9,000 shares on August 1, 2008. How many shares will be used to calculated earnings per share

How do you figure out the rate of sustainable growth : The total asset turnover is 1.60 and the debt-equity ratio is .60 how do you figure out the rate of sustainable growth?

Find the payback period on the investment : Payback: Northern Specialties just purchased inventory-management computer software at a cost of $1,645,276. Cost savings from the investment over the next six.

User Account

All Pages