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[The following information applies to the questions displayed below.] The Heritage Amusement Park would like to construct a new ride called the Sonic Boom, which

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[The following information applies to the questions displayed below.]

The Heritage Amusement Park would like to construct a new ride called the Sonic Boom, which the park management feels would be very popular. The ride would cost $325,000 to construct, and it would have a 10% salvage value at the end of its 15-year useful life. The company estimates that the following annual costs and revenues would be associated with the ride: (Ignore income taxes.)

Ticket revenues $ 220,000
Less operating expenses:
Maintenance $ 40,000
Salaries 60,000
Depreciation 19,500
Insurance

55,000

Total operating expenses 174,500
Net operating income $

45,500

24.

Required information

Required:
1-a.

Compute the pay back period associated with the new ride.

Payback period years

1-b.

Assume that the Heritage Amusement Park will not construct a new ride unless the ride provides a payback period of four years or less. Does the Sonic Boom ride satisfy this requirement?

No
Yes

25.

Required information

2-a.

Compute the simple rate of return promised by the new ride. (Round your answer to the nearest whole percent.)

Simple rate of return %

2-b.

If Heritage Amusement Park requires a simple rate of return of at least 15%, does the Sonic Boom ride meet this criterion?

No
Yes
24. 25. The Heritage Amusement Park would like to construct a new ride called the Sonic Boom, which the park management feels would be very popular. The ride would cost $325,000 to construct, and it would have a 10% salvage value at the end of its 15-year useful life. The company estimates that the following annual costs and revenues would be associated with the ride: (gnore income taxes.) $220,000 Ticket revenues Less operating expenses: $40,000 Maintenanc Salaries 60,000 19,500 Depreciation 55,000 nsurance Total operating expenses 174,500 45,500 Net operating income Required: 1-a. Compute the pay back period associated with the new ride. years Payback period 1-b. Assume that the Heritage Amusement Park will not construct a new ride unless the ride provides a payback period of four years or less. Does the Sonic Boom ride satisfy this requirement? O No Yes 2-a. Compute the simple rate of return promised by the newride. (Round your answer to the nearest whole percent) Simple rate of return 2-b. Heritage Amusement Park requires a simple rate of return of at least 15%, does the Sonic Boom ride meet this criterion? O No Yes

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