Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Problem 13-26 Simple Rate of Return; Payback [LO13-1, LO13-6] Sharkeys Fun Center contains a number of electronic games as well as a miniature golf course

Problem 13-26 Simple Rate of Return; Payback [LO13-1, LO13-6] 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 gathered the following information about the slide: Water slide equipment could be purchased and installed at a cost of $300,000. According to the manufacturer, the slide would be usable for 12 years after which it would have no salvage value. Mr. Sharkey would use straight-line depreciation on the slide equipment. 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 $86,500 to an amusement park in a nearby city. 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 $3.50 per person (the same price the Fun Center has been charging for the old rides). Based on experience at other water slides, Mr. Sharkey estimates that annual incremental operating expenses for the slide would be: salaries, $80,000; insurance, $4,300; utilities, $13,100; and maintenance, $9,900. 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. 2-b. Based on the above computation, would the water slide be constructed if Mr. Sharkey requires a simple rate of return of at least 12% on all investments? 3-a. Compute the payback period for the water slide. 3-b. If Mr. Sharkey accepts any project with a payback period of five years or less, would the water slide be constructed?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

IRS Audit Protection And Survival Guide Trucking Industry

Authors: Daniel J. Baran, Gerald F. Bernard, James E. Brown

1st Edition

0471166413, 978-0471166412

More Books

Students also viewed these Accounting questions

Question

Factors Affecting Conflict

Answered: 1 week ago

Question

Describe the factors that lead to productive conflict

Answered: 1 week ago

Question

Understanding Conflict Conflict Triggers

Answered: 1 week ago