Exercise 11-6 Payback Period and Simple Rate of Return [L011-1, L011-4] [The following information applies to the questions displayed below. Nick's Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $392,000, have an eight-year useful life, and have a total salvage value of $39,200. The company estimates that annual revenues and expenses associated with the games would be as follows: $300,000 Revenues Less operating expenses: $90,000 Commissions to amusement houses Insurance Depreciation Maintenance 72,000 44,100 40,000 246,100 Net operating income $53,900 Exercise 11-6 Part 1 Required 1a. Compute the pay back period associated with the new electronic games. Payback Period Choose Numerator: I Choose Denominator:Payback Period -Payback period years 1b. Assume that Nick's 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 Exercise 11-6 Part 2 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%.) Simple rate of return 2b. If the company requires a simple rate of return of at least 12%, will the games be purchased? Yes No