The Heritage Amusement Park would like to construct a new ride called the Sonic Boom, which the

Question:

The Heritage Amusement Park would like to construct a new ride called the Sonic Boom, which the park management feels would be very popular. The ride would cost $450,000 to construct, and it would have a 10% at the end of its 15-year useful life. The company estimates that the following annual costs and revenues would be associated with the ride:

Required:
(Ignore income taxes.)
1. Assume that the Heritage Amusement Park will not construct a new ride unless the ride provides a payback period of six years or less. Does the Sonic Boom ride satisfy this requirement?
2. Compute the simple rate of return promised by the new ride. If Heritage Amusement Park requires a simple rate of return of at least 12%, does the Sonic Boom ride meet thiscriterion?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...