Railey's Wonderhub contains a number of electronic games, as well as a miniature golf course and various rides located outside the building. Paul Railey, the owner, would like to construct a water slide on one portion of his property. Railey has gathered the following information about the slide:

a$.$ Water slide equipment could be purchased and installed at a cost of $$374,000.$ According to the manufacturer, the slide would be usable for $10$ years, after which it would have no salvage value.

b$.$ Railey 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 $$74,000$ to an amusement park in a nearby city.

d$.$ Railey has concluded that about $52,400$ more people would use the water slide each year than have been using the rides. The admission price would be $$4\mathrm{.}00$ per person $($the same price that the Wonderhub has been charging for the rides$).$

e$.$ On the basis of experience at other water slides, Railey estimates that incremental operating expenses each year for the slide would be as follows: salaries, $$87,400$; insurance, $$4,800$; utilities, $$14,200$; maintenance, $$10,400.$

Required:

Prepare an income statement showing the expected incremental net income each year from the water slide.

$\backslash$table$[[$Railey$\text{'}$s Wonderhub,$],[,$Incremental Income Statement,$],[,,],[,,],[,,],[,,],[,,],[,,],[,,],[$Todal operating expenses,,$],[,,]]$

$2-$a$.$ Compute the SRR expected from the water slide. $($Round your answer to $2$ decimal places.$)$

Simple rate of return

$\%$

$2-$b$.$ On the basis of this computation, would the water slide be constructed if Railey requires 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.$)$

Payback period

years

$3-$b$.$ If Railey requires a payback period of five years or less, should the water slide be constructed?

Yes

No