CH Problem 12-26 Simple Rate of Return; Payback [L012-1, LC12-6] Sharkey's 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 gathered the following Information about the slide a. Water slide equipment could be purchased and installed at a cost of $360,000. According to the manufacturer, the slide would be usable for 12 years after which it would have no salvage value b. Mr. Sharkey would use straight-line depreciation on the slide equipment. c. To make room for the water slide, several tides would be dismantled and sold. These rides are fully depreciated, but they could be sold for $97,500 to an amusement park in a nearby city. d. Mr. Sharkey concluded that about 50,000 more people would use the water slide each year than have been using the rides. The admission price would be $3.90 per person (thelsame price the Fun Center has been charging for the old rides), e Based on experience at other water slides, Mc Sharkey estimates that annual incremental operating expenses for the slide would be salaries, $84.000 insurance $4700; utilities. $13,500; and maintenance, $10,300 Required: 1. Prepare an income statement showing the expected net operating income each year from the water slide. 2-a Compute the simple rate of return expected from the water slide 2b. Based on the above computation would the water slide be constructed if Mr. Sharkey requires a simple rate of return of at least 13% on all investments? 3-a Compute the payback period for the water slide 3-5. 11 Mr. Sharkey accepts any project with a payback period of five years or less, would the water side be constructed? Complete this question by entering your answers in the tabs below. Req 1 Reg 2A Req 2B Req Req 3B Prepare an income statement showing the expected net operating income each year from the water slide. Sharkey's Fun Center Income Statement Selling and administrative expenses Total seling and administrative expenses 0 $ $ 0 Rega Req2A > Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Req Req 3B Compute the simple rate of return expected from the water slide. Simple rate of retum % Reg 1 Req 2A Reg 2B Req 3A Reg 38 Based on the above computation, would the water slide be constructed if Mr. Sharkey requires a simple rate of return of at least 13% on all investments? Yes Ono Reg 1 Req 2A Req 2B Req 3A Req 3B Compute the payback period for the water slide. (Round your answer to 2 decimal places.) Payback period years Reg 1 Req 2A Req 2B Req 3A Req 3B If Mr. Sharkey accepts any project with a payback period of five years or less, would the water slide be constructed? Yes ONO