PART 1

Required information Skip to question [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 $380,000, have a fifteen-year useful life, and have a total salvage value of $38,000. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $ 300,000 Less operating expenses: Commissions to amusement houses $ 60,000 Insurance 65,000 Depreciation 22,800 Maintenance 80,000 227,800 Net operating income $ 72,200 Required: 1a. Compute the payback period associated with the new electronic games. 1b. Assume that Nicks 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?

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PART 2

Nicks Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $380,000, have a fifteen-year useful life, and have a total salvage value of $38,000. The company estimates that annual revenues and expenses associated with the games would be as follows:

Revenues				$	300,000
Less operating expenses:
Commissions to amusement houses	$	60,000
Insurance		65,000
Depreciation		22,800
Maintenance		80,000			227,800
Net operating income				$	72,200

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?

Required information [The following information applies to the questions displayed below.] 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 $380,000, have a fifteen-year useful life, and have a total salvage value of $38,000. The company estimates that annual revenues and expenses associated with the games would be as follows: $300,000 Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance Net operating income $60,000 65,000 22,800 80,000 227,800 $ 72,200 Required: 1a. Compute the payback period associated with the new electronic games. 1b. 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