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 $3,500 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 would be considered in computing depreciation.c. Based on similar outlets elsewhere, Mr. Swanson estimates that sales would total $300,000 per year. Ingredients would cost 20% of sales.d. Operating costs would include $70,000 per year for salaries, $3,500 per year for insurance, and $27,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc., of 12.5% of sales.

Answer 1

It will have a projected income before interest and taxes for 59,800

It will require a 45,000 dollar investment

the return will be of 133%

It seems to be a profitable business opportunity.

Step-by-step explanation:

remodeling cost 27,000

equipment 18,000

sales per year 300,000

Cost of goods Sold (60,000)

franchise commision (37,500)

salaries expense (70,000)

insurance expense (2,500)

utilities expense (27,000)

rent expense (42,000)

EBDIT 61, 000

depreciation (1,200)

EBIT 59,800

Return on Investment:

Investment: 27,000 remodelling cost

18,000 euipment cost

total 45,000

Retun before Interest and Taxes: 59,800

59.800/45,000 = 1.32888 = 133%