1) The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Year Investment Cash Inflow 1 $60,000 $2,000 2 $4,000 $4,000 3 $8,000 4 $9,000 5 $12,000 6 $10,000 7 $8,000 8 $5,000 9 $4,000 10 $4,000 Required: 1. Determine the payback period of the investment. (Round your answer to 1 decimal place.) 2. Would the payback period be affected if the cash inflow in the last year were several times as large? Yes No

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Nicks Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $300,000, have an eight-year useful life, and have a total salvage value of $30,000. The company estimates that annual revenues and expenses associated with the games would be as follows:

Revenues				$	200,000
Less operating expenses:
Commissions to amusement houses	$	60,000
Insurance		30,000
Depreciation		33,750
Maintenance		35,000			158,750
Net operating income				$	41,250

2.

value: 5.00 points

Required information

Required:
1a.	Compute the pay back period associated with the new electronic games.

4) A piece of laborsaving equipment has just come onto the market that Mitsui Electronics, Ltd., could use to reduce costs in one of its plants in Japan. Relevant data relating to the equipment follow:

Purchase cost of the equipment	$	299,000
Annual cost savings that will be provided by the equipment	$	65,000
Life of the equipment		10 years

Required:

1-a.	Compute the payback period for the equipment.

1-b.

If the company requires a payback period of four years or less, would the equipment be purchased?

	Yes
	No

2-a.	Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipments useful life.

2-b.

Would the equipment be purchased if the companys required rate of return is 16%?

	Yes
	No

References

eBook & Resources

1b.

Assume that Nicks Novelties, Inc., will not purchase new games unless they provide a payback period of 6 years or less. Would the company purchase the new games?

	Yes
	No

References

eBook & Resources

WorksheetLearning Objective: 11-01 Determine the payback period for an investment.

Difficulty: 1 EasyLearning Objective: 11-04 Compute the simple rate of return for an investment.

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3.

value: 10.00 points

Required information

2a.	Compute the simple rate of return promised by the games. (Round your answer to 1 decimal place. i.e. 0.123 should be considered as 12.3%.)

2b.

If the company requires a simple rate of return of at least 11%, will the games be purchased?

	Yes
	No