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 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?



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