Sharkey's Fun Center is considering building a water slide for its customers and gathered the following...
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Sharkey's Fun Center is considering building a water slide for its customers and gathered the following information: a. The water slide would cost $495,000, have a 12-year useful life with no salvage value and be depreciated using the straight-line method. b. To make room for the water slide, several rides would be dismantled and sold. These rides are fully depreciated, but they could be sold for $122,250 to a nearby amusement park. c. The water slide would attract 50,000 more customers per year who each pay the company's usual admission price of $4.80 per person. d. The water slides' annual incremental operating expenses would be salaries, $93,000; insurance, $5,600; utilities, $14,400; and maintenance, $11,200. Required: 1. Prepare an income statement showing the water slides' expected annual net operating income. 2-a. Compute the water slides' simple rate of return. 2-b. Would the company purchase the water slide if it requires a simple rate of return of at least 16%? 3-a. Compute the water slides' payback period. 3-b. Would the company purchase the water slide if it requires a payback period of five years or less? Required 1 Required 2A Required 2B Required 3A Required 3B Prepare an income statement showing the water slides' expected annual net operating income. Sharkey's Fun Center Income Statement Selling and administrative expenses: Total selling and administrative expenses Required 1 Required 2A Required 2B Required 3A Required 3B Compute the water slides' simple rate of return. Simple rate of return % Required 1 Required 2A Required 2B Required 3A Required 3B Would the company purchase the water slide if it requires a simple rate of return of at least 16%? Required 1 Required 2A Required 2B Required 3A Required 3B Compute the water slides' payback period. Note: Round your answer to 2 decimal places. Payback period years Required 1 Required 2A Required 2B Required 3A Required 3B Would the company purchase the water slide if it requires a payback period of five years or less? Sharkey's Fun Center is considering building a water slide for its customers and gathered the following information: a. The water slide would cost $495,000, have a 12-year useful life with no salvage value and be depreciated using the straight-line method. b. To make room for the water slide, several rides would be dismantled and sold. These rides are fully depreciated, but they could be sold for $122,250 to a nearby amusement park. c. The water slide would attract 50,000 more customers per year who each pay the company's usual admission price of $4.80 per person. d. The water slides' annual incremental operating expenses would be salaries, $93,000; insurance, $5,600; utilities, $14,400; and maintenance, $11,200. Required: 1. Prepare an income statement showing the water slides' expected annual net operating income. 2-a. Compute the water slides' simple rate of return. 2-b. Would the company purchase the water slide if it requires a simple rate of return of at least 16%? 3-a. Compute the water slides' payback period. 3-b. Would the company purchase the water slide if it requires a payback period of five years or less? Required 1 Required 2A Required 2B Required 3A Required 3B Prepare an income statement showing the water slides' expected annual net operating income. Sharkey's Fun Center Income Statement Selling and administrative expenses: Total selling and administrative expenses Required 1 Required 2A Required 2B Required 3A Required 3B Compute the water slides' simple rate of return. Simple rate of return % Required 1 Required 2A Required 2B Required 3A Required 3B Would the company purchase the water slide if it requires a simple rate of return of at least 16%? Required 1 Required 2A Required 2B Required 3A Required 3B Compute the water slides' payback period. Note: Round your answer to 2 decimal places. Payback period years Required 1 Required 2A Required 2B Required 3A Required 3B Would the company purchase the water slide if it requires a payback period of five years or less?
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