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 $330,000, 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 $60,000 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 $3.60 per person. d. The water slides' annual incremental operating expenses would be salaries, $85,000; insurance, $4,200; utilities, $13,000; and maintenance, $9,800. 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 14%? 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? Sharkey's Fun Center is considering building a water slide for its customers and gathered the following information: a. The water slide would cost $330,000, 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 $60,000 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 $3.60 per person. d. The water slides' annual incremental operating expenses would be salaries, $85,000; insurance, $4,200; utilities, $13,000; and maintenance, $9,800. 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 14%? 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?

Answer rating: 100% (QA)

1 Income statement for Sharkeys Fun Center Revenue A Additional customers 180000 Total Operating ExpensesB Salaries 85000 Insurance 4200 Utilities 13000 Maintenance 9800 Depreciation 22500 134500 Net ... View the full answer