Required:1. Use the total-cost appr

Required:
1. Use the total-cost approach to determine the present value of the cash flows associated with each alternative. Round all dollar amounts to the nearest whole dollar.
2. Which alternative should the company accept?
PROBLEM 13-26 Simple Rate of Return; Payback [L013-1. L013-6]
Sharkey’s Fun Center contains a number of electronic games as well as a miniature golf course and
various 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 $330,000. 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 $60,000 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 $3.60 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 that annual incremental operating expenses for the slide would be: salaries, $85,000; insurance, $4,200; utilities, $13,000; and maintenance. $9,800.