Sharkeys Fun Center is considering building a water slide for its customers and gathered the following information:

1. The water slide would cost $435,000, have a 12-year useful life with no salvage value and be depreciated using the straight-line method.
2. 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 $111,250 to a nearby amusement park.
3. The water slide would attract 50,000 more customers per year who each pay the companys usual admission price of $4.40 per person.
4. The water slides annual incremental operating expenses would be salaries, $89,000; insurance, $5,200; utilities, $14,000; and maintenance, $10,800.

Required:

1. Prepare an income statement showing the water slides expected annual net operating income.

2-a. Compute the water slides simple rate of return.

2-b. Would the company purchase the water slide if it requires a simple rate of return of at least 12%?

3-a. Compute the water slides payback period.

3-b. Would the company purchase the water slide if it requires a payback period of five years or less?