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machine is expected to last for five years, with zero salvage value at the end of five years. The current machine can be sold for

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machine is expected to last for five years, with zero salvage value at the end of five years. The current machine can be sold for $14,500 if the company decides to buy the new machine. The company uses straight-line depreciation. In trying to decide whether to purchase the new machine, the president has prepared the following analysis: "Even though the new machine looks good," said the president, "we can't get rid of that old machine if it means taking o huge loss on it. We'll have to use the old machine for at least a few more years." Sales are expected to be $304,500 per year, and selling and odministrative expenses are expected to be $182,70 iper year; regardless of which machine is used Required: 1. Prepare a comparative income statement covering the next five years, assuming a. The new machine is not purchased b. The new machine is purchosed. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.) b. The new machine is purchased (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.) 2. Compute the net advantage of purchasing the new mochine using only relevant costs in your analysis. (Do not round intermediate calculations.) Sharkey's Fun Centre contains a number of electronic games, as well as a miniature golf course and varlous rides located outside the building. Paul Sharkey, the owner, would like to construct a water slide on one portion of his property. Sharkey has gathered the following information about the slide: a. Water silde equipment could be purchased and installed at a cost of $270,000. According to the manufacturer, the side would be usable for 12 years, after which it would have no salvage value b. Sharkey would use straight-line depreciation on the slide equipment. c. 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 $50,000 to an amusement park in a nearby city. d. Sharkey has concluded that about 80,000 more people would use the water side each year than have been using the rides. The admission price would be $3.80 per person (the same price that the Fun Centre has been charging for the rides). e. On the basis of experience at other water slides, Sharkey estimates that incremental operating expenses each year for the side. would be as follows: salaries, $41,900; insurance, $2,000; utilites, $6,400; maintenance, $4,900. Required: 1. Prepare an income statement showing the expected incremental net income each year from the water silde. 2-a. Compute the SRR expected from the water slide. 2-b. On the basis of this computation, would the water side be constructed if Shatkey require5 an SRR of at least 14% on all investments? Yes No 3-a. Compute the payback period for the water slide. (Round your answer to 2 decimal places.) 3-b. If Sharkey requires a payback period of flve years or less, should the water slide be constructed? Yes No machine is expected to last for five years, with zero salvage value at the end of five years. The current machine can be sold for $14,500 if the company decides to buy the new machine. The company uses straight-line depreciation. In trying to decide whether to purchase the new machine, the president has prepared the following analysis: "Even though the new machine looks good," said the president, "we can't get rid of that old machine if it means taking o huge loss on it. We'll have to use the old machine for at least a few more years." Sales are expected to be $304,500 per year, and selling and odministrative expenses are expected to be $182,70 iper year; regardless of which machine is used Required: 1. Prepare a comparative income statement covering the next five years, assuming a. The new machine is not purchased b. The new machine is purchosed. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.) b. The new machine is purchased (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.) 2. Compute the net advantage of purchasing the new mochine using only relevant costs in your analysis. (Do not round intermediate calculations.) Sharkey's Fun Centre contains a number of electronic games, as well as a miniature golf course and varlous rides located outside the building. Paul Sharkey, the owner, would like to construct a water slide on one portion of his property. Sharkey has gathered the following information about the slide: a. Water silde equipment could be purchased and installed at a cost of $270,000. According to the manufacturer, the side would be usable for 12 years, after which it would have no salvage value b. Sharkey would use straight-line depreciation on the slide equipment. c. 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 $50,000 to an amusement park in a nearby city. d. Sharkey has concluded that about 80,000 more people would use the water side each year than have been using the rides. The admission price would be $3.80 per person (the same price that the Fun Centre has been charging for the rides). e. On the basis of experience at other water slides, Sharkey estimates that incremental operating expenses each year for the side. would be as follows: salaries, $41,900; insurance, $2,000; utilites, $6,400; maintenance, $4,900. Required: 1. Prepare an income statement showing the expected incremental net income each year from the water silde. 2-a. Compute the SRR expected from the water slide. 2-b. On the basis of this computation, would the water side be constructed if Shatkey require5 an SRR of at least 14% on all investments? Yes No 3-a. Compute the payback period for the water slide. (Round your answer to 2 decimal places.) 3-b. If Sharkey requires a payback period of flve years or less, should the water slide be constructed? Yes No

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