Question
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,
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. Paul has gathered the following information about the slide: |
a. | Water slide equipment could be purchased and installed at a cost of $330,000. According to the manufacturer, the slide would be usable for 12 years, after which it would have no salvage value. |
b. | Paul 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 $60,000 to an amusement park in a nearby city. |
d. | Paul has 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 $3.60 per person (the same price that the Fun Center has been charging for the rides). |
e. | On the basis of experience at other water slides, Paul estimates that incremental operating expenses each year for the slide would be as follows: salaries, $85,000; insurance, $4,200; utilities, $13,000; maintenance, $9,800. |
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