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Exercise 12-8 Payback Period and Simple Rate of Return (LO12-1, LO12-6] [The following information applies to the questions displayed below.] Nick's Novelties, Inc., is considering
Exercise 12-8 Payback Period and Simple Rate of Return (LO12-1, LO12-6] [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 $385,000, have a fifteen-year useful life, and have a total salvage value of $38,500. The company estimates that annual revenues and expenses associated with the games would be as follows: $280,000 Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance Net operating income $80,000 53,000 23,100 70,000 226,100 $ 53,900 Exercise 12-8 Part 2 2a. Compute the simple rate of return promised by the games. 2b. If the company requires a simple rate of return of at least 12%, will the games be purchased
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