Exercise 14-8 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 $498,000. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance Net operating income $280,000 $80,000 57,000 19,920 60,000 216,920 $ 63,080 "Depreciation is a non-cash expense. Requirements: 1) Compute the payback period associated with the new electronic games. years 2) Assume that Nick's Novelties, Inc., will not purchase new games unless they provide a payback period of eight years or less. Would the company purchase the new games? 3) Compute the simple rate of return promised by the games. number. Example: 0.21