Item 4

Part 2 of 2

0.66 points

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Item 4

Item 4 Part 2 of 2 0.66 points

Required information

[The following information applies to the questions displayed below.]

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 a fifteen-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				$	240,000
Less operating expenses:
Commissions to amusement houses	$	90,000
Insurance		30,000
Depreciation		18,000
Maintenance		60,000			198,000
Net operating income				$	42,000

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?