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 Required: 1. 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. Compute 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