EXERCISE 7-8 Payback Period and Simple Rate of Return L07-1, L07-6 Nick's Novelties, Inc., is considering the purchase of new electronic games to place in its amuse. ment houses. The games would cost a total of $300,000, have an eight-year useful life, and have a total salvage value of $20,000. The company estimates that annual revenues and expenses associ. ated with the games would be as follows: $200,000 Revenues Less operating expenses: Commissions to amusement houses. Insurance Depreciation.. Maintenance Net operating income.. $100,000 7,000 35,000 18,000 160,000 $ 40,000 Required: 1. What is the payback period for the new electronic games? Assume that Nick's Novelties, Inc., will not purchase new games unless they provide a payback period of five years or less. Would the company purchase the new games? 2. What is the simple rate of return promised by the games? If the company requires a simple rate of return of at least 12%, will the games be purchased