Please I need help with the following questions.
3. Sharkey's Fun Center contains a number of electronic games as well as a miniature golfcourse and various rides located outside the building. Paul Sharkey, the owner, would like to construct a water slide on one pot1ion of his propet1y. Mr. Sharkey has gathered the following information about the slide: a. 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. b. Mr. Sharkey would use straight-line depreciation on the slide equipment, so depreciation will equal $50,000 per year. c. 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). d. 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. e. 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 ier. Sharkey requires an accounting rate ofreturn of at least 10% on all investments? 2. Compute the project's payback. If projects having a payback of 4 years or less are acceptable, is this option acceptable? 4. Bimbos Pizza operates pizza shops in several states. One of the company's most protable shops is located adjacent to the campus ofa large university. A small bakery next to the shop has just gone out of business, and Bimbos Pizza has an opportunity to lease the vacated space for $30,000 per year under a [0-year lease. Romano's management is considering ways in which the available space might be used. Romano's income tax rate is 25% annually. An Alternative - The pizza shop in this location is currently selling 50,000 pizzas per year. Management is condent that sales could be increased by 60% by taking out the wall between the pina shop and the vacant space and expanding the pizza outlet. Costs for remodeling and for new equipment would be $400,000. Management estimates that 20% of the new sales would be small pizzas, 50% would be medium pizzas and 30% would be large pinas. Selling prices and costs for ingredients for the three sizes of pizzas follow {per pizza): Selling Cost of Er12eInmrllents Small ...... $6.?0 $l.70 Medium . 8.90 2.90 Large ...... . . . 11.00 3.00 Using the information above, the weighted average contribution margin ofthese new sales will equal $6.40 per new pizza. The equipment would have no salvage value in 10 years, when the lease ends, so depreciation on that remodeling will equal $40,000 per year.. Required: 1. Compute the expected net annual after-tax cash inow from the option (cash receipts from sales and games less related cash expenses). 2.. The company requires a rate of return on all ofits investments of at least 14%. Compute the net present value of expanding the pizza shop. 3. What is this investment option's internal rate of return
