3. Sharkeys Fun Center contains a number of electronic games as well as a miniature golf course and various rides located outside the building. Paul Sharkey, the owner, would like to construct a water slide on one portion of his property. Mr. Sharkey has gathered the following information about the slide:

1. Water slide equipment could be purchased and installed at a cost of $400,000. According to the manufacturer, the slide would be usable for 8 years after which it would have no salvage value.
2. Mr. Sharkey would use straight-line depreciation on the slide equipment, so depreciation will equal $50,000 per year.
3. Mr. Sharkey has concluded that about 70,000 more people would use the water slide each year than have been using the rides. The admission price would be $5.00 per person (the same price that the Fun Center has been charging for the rides).
4. Based on experience at other water slides, Mr. Sharkey estimates that incremental operating expenses each year for the slide would be: salaries, $80,000; insurance, $10,000; utilities, $15,000; and maintenance, $5,000.
5. The income tax rate for all years is 30%.

Required:

1. Compute the accounting rate of return expected from the water slide. Based on this computation, would the water slide be constructed if Mr. Sharkey requires an accounting rate of return of at least 10% on all investments?
2. Compute the projects payback. If projects having a payback of 4 years or less are acceptable, is this option acceptable?