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Nick's Novelties, Inc. is considering the purchase of electronic pinball machines to place in game arcades. The machines would cost a total of $600,000, have an eight-year useful life, and have a total salvage value of $30,000. The company estimated that annual revenues and expenses associated with the machines would be as follows: $329,000 Revenues Operating expenses: Commissions to game arcades Insurance Depreciation Maintenance Net operating income $185,000 6,000 71,250 18,000 280,250 $ 48,750 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.) Payback period years 1-b. Assume that Nick's Novelties, Inc. will not purchase new equipment unless it provides a payback period of 6 years or less. Will the company purchase the pinball machines? Yes O 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%).) Simple rate of return % 2-b. If the company requires a simple rate of return of at least 14%, will the pinball machines be purchased? Yes 3-a. If Nick's 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.) Net present value 3-b. Should the company purchase the pinball machines? O Yes EXHIBIT 10-1 Present Value of $1 F. (1 + r)" ) 12% 24% 40% Period 4% 5% 8% 10% 1 0.962 0.952 0943 0.926 0.909 0.893 2 0.925 0.907 0.890 0.857 0.826 0.797 16% 18% 20% 22% 0.877 0.562 0.847 0.833 0.820 0.769 0.743 0.718 0.694 0.672 26% 28% 30% 0.806 0.794 0.781 0.769 0.650 0.630 0.610 0.592 0.714 0.510 3 0.889 0.864 0.840 0.794 0.751 0.712 0.675 0.641 0.609 0.579 0.551 0.524 0.500 0.477 0.455 0.364 4 0.855 0.823 0.792 0.735 0.683 0.636 0.592 0.552 0.516 0.482 0.451 0.423 0.397 0.373 0.350 0.260 5 0.822 0.784 0.747 0.681 0.621 0.567 0.519 0.476 0.437 0.402 0.370 0.341 0.315 0.291 0.269 0.186 6 0.790 0.746 0.705 0.630 0.564 0.507 0.456 0.410 0.370 0.335 0.303 0.275 0.250 0.227 0.207 0.133 7 0.760 8 0.731 9 0.703 10 0.676 11 0.650 12 0.625 13 0.601 0.711 0.665 0.583 0.513 0.452 0.400 0.354 0.314 0.279 0.249 0.222 0.198 0.178 0.159 0.095 0.677 0.627 0.540 0.467 0.404 0.351 0.305 0.266 0.233 0.204 0.179 0.157 0.139 0.123 0.068 0.645 0.592 0.500 0.424 0.361 0.308 0.263 0.225 0.194 0.167 0.144 0.125 0.108 0.094 0.048 0.614 0.558 0.463 0.386 0.322 0.270 0.227 0.191 0.162 0.137 0.116 0.099 0.085 0.073 0.035 0.585 0.527 0.429 0.350 0.287 0.237 0.195 0.162 0.135 0.112 0.094 0.079 0.066 0.056 0.025 0.557 0.497 0.397 0.319 0.257 0.205 0.168 0.137 0.112 0.092 0.076 0.062 0.052 0.043 0.018 0.530 0.469 0.368 0.290 0.229 0.182 0.145 0.116 0.093 0.075 0.061 0.050 0.040 0.033 0.013 0.505 0.442 0.340 0.263 0.205 0.160 0.125 0.099 0.078 0.062 0.049 0.039 0.032 0.025 0.009 0.481 0.417 0.315 0.239 0.183 0.140 0.108 0.084 0.065 0.051 0.040 0.031 0.025 0.0200.006 0.458 0.394 0.292 0.218 0.163 0.123 0.093 0.071 0.054 0.042 0.032 0.025 0.019 0.015 0.005 0.436 0.371 0.270 0.198 0.146 0.108 0.080 0.060 0.045 0.034 0.026 0.020 0.015 0.012 0.003 0.416 0.350 0.250 0.180 0.130 0.095 0.069 0.051 0.038 0.028 0.021 0.016 0.012 0.009 0.002 0.396 0.331 0.232 0.164 0.116 0.083 0.060 0.043 0.031 0.023 0.017 0.012 0.009 0.007 0.002 0.377 0.312 0.215 0.149 0.104 0.073 0.051 0.037 0.026 0.019 0.014 0.010 0.007 0.005 0.001 0.577 15 0.555 16 0.534 17 0.513 IS 0.494 19 0.475 20 0.456 21 0.011 0.008 0.006 0.004 0.001 22 23 24 25 0.439 0.359 0.294 0.199 0.135 0.093 0.064 0.044 0.031 0.022 0.015 0.422 0.342 0.278 0.184 0.123 0.083 0.056 0.038 0.026 0.018 0013 0.406 0.326 0.262 0.170 0.112 0.074 0.049 0.033 0.022 0.015 0.010 0.390 0.310 0.247 0.158 0.102 0.066 0.043 0.028 0.019 0.013 0.008 0.375 0.295 0.233 0.146 0.092 0.059 0.035 0.024 0.016 0.010 0.007 0.361 0.281 0.220 0.135 0.084 0.053 0.033 0.021 0.014 0.009 0.006 0.347 0.268 0.207 0.125 0.076 0.047 0.029 0.018 0.011 0.007 0.005 0.333 0.255 0.196 0.116 0.069 0.042 0.026 0.016 0.010 0.006 0.004 0.321 0.243 0.185 0.107 0.063 0.037 0.022 0.014 0.005 0.005 0.003 26 0.0090.006 0.004 0.003 0.001 0.007 0.005 0.003 0.002 0.006 0.004 0.003 0.002 0.005 0.003 0.002 0.001 0.004 0.002 0.002 0.001 0.003 0.002 0.001 0.001 0.002 0.002 0.001 0.001 0.002 0.001 0.001 0.002 0.001 0.001 27 28 29 30 0.308 0.231 0.174 0.099 0.057 0.033 0.020 0.012 0.007 0.004 0.003 40 0.208 0.142 0.097 0.046 0.022 0.011 0.005 0.003 0.001 0.001 EXHIBIT 10-2 Present Value of an Annuity of $1 -| Period 4% 5% 6% 8% 28% 30% 40% 1 26% 0.794 0.962 0.952 0.943 10% 12% 0.909 0.893 1.736 1.690 0.926 14% 16% 18% 20% 22% 24% 0.877 0.862 0.847 0.833 0.820 0.806 1.647 1.605 1.566 1.528 1.492 1.457 0.781 0.769 0.714 2 1.886 1.859 1.833 1.783 1.424 1.392 1.361 1.224 3 2.775 2.723 2.673 2.577 2.487 2.402 2.322 2.246 2.174 2.106 2.042 1.981 1.923 1.868 1.816 1.589 4 3.630 3.546 3.465 3.312 3.170 3.037 2.914 2.798 2.690 2.589 2.494 2.404 2.320 2.241 2.166 1.879 5 4.452 4.330 4.212 3.993 3.791 3.605 3.433 3.274 3.127 2.991 2.864 2.745 2.635 2.532 2.436 2.035 6 5.242 5.076 4.917 4.623 4.355 3.889 3.685 3.498 3.326 3.167 3.020 2.885 2.759 2.643 2.168 7 6.002 5.786 5.582 5.206 4.868 4.564 4.288 4.039 3.812 3.605 3.416 3.242 3.083 2.937 2.263 2.802 2.925 S 6.733 6.463 6.210 5.747 5.335 4.968 4.639 4.344 4.078 3.837 3.619 3.421 3.241 3.076 2.331 9 7.435 7.108 6.802 6.247 5.759 5.328 4.946 4.607 4.303 4.031 3.786 3.566 3.366 3.184 3.019 2.379 10 S111 7.722 7.360 6.710 6.145 5.650 5 216 4.833 4.494 4.192 3.923 3.662 3.465 3.269 3.092 2.414 11 8.760 8.306 7.887 7.139 6.495 5.938 5.453 5.029 4.656 4.327 4.035 3.776 3.544 3.335 3.147 2.438 12 9.385 S.563 S. 384 7.536 6.814 6.194 5.660 5.197 4.793 4.439 4.127 3.851 3.606 3.387 3.190 2.456 13 9.986 9.394 8.853 7.904 7.103 6.424 5.842 5.342 4.910 4.533 4.203 3.912 3.656 3.427 3.223 2.468 14 10.563 9.899 9.295 8.244 7.367 6.628 6.002 5.468 5.00S 4.611 4.265 3.962 3.695 3.459 3.249 2.477 15 11.118 10.350 9.712 S.559 7.606 6.811 6.142 5.575 5.092 4.675 4.315 4.001 3.726 3.483 3.268 2.484 16 11.652 10.83S 10.106 S.851 7.824 6.974 6.265 5.669 5.162 4.730 4.357 4.033 3.751 3.503 3.283 2.489 17 12.166 11.274 10.477 9.122 S.022 7.120 6.373 5.749 5.222 4.775 4.391 4.059 3.771 3.518 3.295 2.492 18 12.659 11.690 10.828 9.372 8.201 7.250 6.467 5.818 5.273 4.812 4.419 4.080 3.786 3.529 3.304 2.494 19 13.134 12.085 11.158 9.604 8.365 7.366 6.550 5.877 5.316 4.844 4.442 4.097 3.799 3.539 3.311 2.496 20 13.590 12.462 11.470 9.818 8.514 7.469 6.623 5.929 5.353 4.870 4.460 4.110 3.SOS 3.546 3.316 2.497 21 14.029 12.821 11.764 10.017 8.649 7.562 6.687 5.973 5.384 4.891 4.476 4.121 3.816 3.551 3.320 2.498 22 14.451 13.163 12.042 10.201 8.772 7.645 6.743 6.011 5.410 4.909 4.488 4.130 3.822 3.556 3.323 2.498 23 14.857 13.489 12.303 S.SS3 7.718 6.792 6.792 6.044 5.432 4.925 4.499 4.137 3.827 3.325 2.499 24 15.247 13.799 8.985 7.784 6.835 6.835 6.073 5.451 4.937 4.507 4.143 3.831 3.327 2.499 12.550 12.783 10.371 10.529 10.675 10.810 25 15.622 14.094 9.077 7.843 6.873 6.873 6.097 5.467 4.948 4.514 4.147 3.834 3.329 2.499 26 15.983 14.375 13.003 9.161 7.896 6.906 6.906 6.118 5.480 4.956 4.520 4.151 3.837 3.330 2.500 27 16.330 14.643 13.211 10.935 9.237 7.943 6.935 6.935 6.136 5.492 4.964 4.525 4.154 3.839 3.331 2.500 28 16.663 14.898 13.406 11.051 9.307 7.984 6.961 6.961 6.152 5.502 4.970 4.528 4.157 3.840 3.331 2.500 29 16.984 15.141 13.591 11.158 9.370 8.022 6.983 6.983 6.166 5.510 4.975 4.531 4.159 3.841 3.332 2.500 30 17.292 15.373 13.765 11.258 9.427 8.055 7.003 7.003 6.177 5.517 4.979 4.534 4.160 3.842 3.332 2.500 40 19.793 17.159 15.046 11.925 9.779 8.244 7.105 7.105 6.234 5.548 4.997 4.544 4.166 3.846 3.333 2.500