Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Nicks Novelties, Inc. is considering the purchase of electronic pinball machines to place in game arcades. The machines would cost a total of $320,000, have

Nicks Novelties, Inc. is considering the purchase of electronic pinball machines to place in game arcades. The machines would cost a total of $320,000, have an eight-year useful life, and have a total salvage value of $20,000. The company estimated that annual revenues and expenses associated with the machines would be as follows:

Revenues $ 242,000
Operating expenses:
Commissions to game arcades $ 115,000
Insurance 9,000
Depreciation 37,500
Maintenance 18,000 179,500
Net operating income $ 62,500

Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables.

Required:

1-a. Compute the payback period. (Round your answer to 1 decimal place.)

1-b. Assume that Nicks Novelties, Inc. will not purchase new equipment unless it provides a payback period of 4 years or less. Will the company purchase the pinball machines?

multiple choice 1

Yes

No

2-a. Compute the simple rate of return promised by the pinball machines. (Round your answer to 1 decimal place. (i.e., 0.1234 should be considered as 12.3%).)

2-b. If the company requires a simple rate of return of at least 15%, will the pinball machines be purchased?

multiple choice 2

Yes

No

3-a. If Nicks Novelties, Inc. has a discount rate of 19%, what is the NPV of this investment? (Hint: Identify the relevant costs and then perform an NPV analysis.) (Negative amount should be indicated with a minus sign. Round discount factor(s) to 3 decimal places.)

3-b. Should the company purchase the pinball machines?

multiple choice 3

Yes

No

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

External Quality Audit Has It Improved Quality Assurance In Universities

Authors: Mahsood Shah, Chenicheri Sid Nair

1st Edition

1843346761, 978-1843346760

More Books

Students also viewed these Accounting questions

Question

How can an e-commerce site be used to achieve extension in CRM?

Answered: 1 week ago

Question

Identify the types of informal reports.

Answered: 1 week ago

Question

Write messages that are used for the various stages of collection.

Answered: 1 week ago