Reference no: EM132057008
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 value would be considered in computing depreciation.
c. Based on similar outlets elsewhere, Mr. Swanson estimates that sales would total $480,000 per year. Ingredients would cost 20% of sales.
d. Operating costs would include $88,000 per year for salaries, $5,300 per year for insurance, and $45,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc., of 13.0% 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 19%, should he acquire the franchise?
Yes
No
3a. Compute the payback period on the outlet. (Round your answer to 1 decimal place.)
3b. If Mr. Swanson wants a payback of two years or less, will he acquire the franchise?
|
What are the most significant challenges
: What are the most significant challenges each one has created within the healthcare industry?
|
|
What would be a fair price for this stock today
: If the required rate of return is 8% per year, what would be a fair price for this stock today?
|
|
Determine the stock total return for the coming year
: Given a constant growth rate (g) in dividends, earnings and the share price, what formula is used to determine the stock's total return for the coming year?
|
|
What would be your monthly payment
: If you want a 30 year mortgage, and the borrowing rate is 5.7% APR, what would be your monthly payment?
|
|
Compute the payback period on the outlet
: Compute the payback period on the outlet. Compute the simple rate of return promised by the outlet.
|
|
What is the cost of dollar-denominated equity
: The risk-free rate in the U.S. is currently 2% and the expected U.S. market return is 10%. Solso, Inc. is considering a project that has a beta of 1.2.
|
|
What is the free cash flow to equity if whirlpool has a tax
: Whirlpool this year will have an EBIT of $200, depreciation of $30, capital expenditures of $150, and an increase in net working capital of $10.
|
|
What must the coupon rate be on these bonds
: The bonds make semiannual payments and have a par value of 51,000. What must the coupon rate be on these bonds? (Enter 3.4% as 3.4 not 0.034)
|
|
Calculate the initial return earned
: Calculate the initial return earned by investors who are allocated shares in the IPO. Round your answer to nearest whole percent.
|