70.2K

Verified Solution

Link Copied!

Problem 8-26 Simple Rate of Return; Payback [LO8-1, LO8-6] Sharkey's Fun Center contains a number of electronic games as well as a miniature golf course and vanious rides located outside the building. Paul Sharkey, the owner, would like to construct a water slide on one portion of his property. Mr. Sharkey has gathered the following information about the slide: a. Water slide equipment could be purchased and installed at a cost of $540,000. According to the manufacturer, the slide would be usable for 12 years after which it would have no salvage value. b. Mr. Sharkey 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 $85,000 to an amusement park in a nearby city. d. Mr. Sharkey 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 $5.10 per person (the same price that the Fun Center has been charging for the old rides). e. Based on experience at other water slides, Mr. Sharkey estimates hat annual incremental operating expenses for the slide would be: salaries, $96,000; insurance, $5,900, utilities, $14,700; and maintenance, $11,500 Required: 1. Prepare an income statement showing the expected net operating income each year from the water slide Selling and administrativa oxponses Tolal seling and administrative expenses 2a. Compute the simple rate of retum expected from the water slide. rato of roturn

Answer & Explanation Solved by verified expert

See Answer