The Heritage Amusement Park would like to construct a new ride called the - 17419

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yousafbhutta

yousafbhutta

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  • Posted on: Mon 27 May, 2013
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Request Description

 

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 $450,000 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

 

 

 

$

250,000

 

  Less operating expenses:

 

 

 

 

 

 

     Maintenance

$

40,000

 

 

 

 

     Salaries

 

90,000

 

 

 

 

     Depreciation

 

27,000

 

 

 

 

     Insurance

 

30,000

 

 

 

 

 




 

 

 

  Total operating expenses

 

 

 

 

187,000

 

 

 

 

 




  Net operating income

 

 

 

$

63,000

 

 

 

 

 




 

Required:

 

1a.

Compute the pay back period associated with the new ride.

 

                 

 

  Payback period

years  

 

1b.

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

 

 

 

2a.

Compute the simple rate of return promised by the new ride. (Omit the "%" sign in your response.)

 

  Simple rate of return

 %  

 

2b.

If Heritage Amusement Park requires a simple rate of return of at least 12%, does the Sonic Boom ride meet this criterion?

 

 

   

 

Solution Description

Please do

Attachments
ch 13 Q 3.docx
ch 13 Q 3.docx