User Dashboard C ezto.mheducation.com/hm.tpx?..=0 .49517536355657943151267315111

Question

User Dashboard C ezto.mheducation.com/hm.tpx?..=0 .495175363556579431512673151117 Sharkey's Fun Center contains a number of electronic games as well as a miniature golf course and va 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 $465,000. 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 dismantied and sold. These rides are fully depreciated, but they could be sold for $116,750 to an amusement park in a nearby city Mr. Sharkey has concluded that about 50,000 more people would use the water slide each year than d. have been using the rides. The admission price would be $4.60 per person (the same price that the F Center has been charging for the old rides) e. Based on experience at other water slides, Mr. Sharkey estimates that annual incremental operating expenses for the slide would be: salaries, $91,000; insurance, $5,400; utilities, $14,200; and maintenance, $11,000 Required: 1. Prepare an income statement showing the expected net operating income each year from the water slide. Income Statement Selling and administrative expenses: Total selling and administrative expenses 2a. Compute the simple rate of return expected from the water slide. 1 Simple rate of return

Explanation / Answer

1.

Depreciation:

2a.

2b. since rate of return 22.79% is more than the expected return 0f 14% it is accepted.

3a. payback period= net investment/net operating cash flow each year

net operating cash flow each year:

payback period= 348250/108400= 3.21 years

3b. since actual payback period is less than required, it is accepted

Income statement Particulars Amount Amount Income        2,30,000 Selling and administration expenses: Salaries        91,000 Insurance           5,400 Utilities        14,200 Maintenance        11,000 Depreciation        29,021 Total expenses        1,50,621 Net operating income            79,379

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.