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 $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 associated with the games would be as follows:

Revenues		$200,000
Less: Operating Expenses
Commissions to amusement houses	$100,000
Insurance	7,000
Depreciation	35,000
Maintenance	18,000	160,000
Net operating income		$40,000

1. What is the payback period for the new electronic games?

1.2. Assume that company will not purchase new games unless they provide a payback period of five years or less, would the company purchase the new game?

Select one or more:

NO

YES

2. What is the simple rate of return promised by the games?

2. If the company requires a simple rate of return to at least 12%, will the games be purchased?

Select one or more:

YES

NO