Question
Required information Exercise 13-8 Payback Period and Simple Rate of Return [LO13-1, LO13-6] [ The following information applies to the questions displayed below .] Nicks
Required information
Exercise 13-8 Payback Period and Simple Rate of Return [LO13-1, LO13-6]
[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 $680,000, have a fifteen-year useful life, and have a total salvage value of $68,000. The company estimates that annual revenues and expenses associated with the games would be as follows:
Revenues | $ | 250,000 | |||
Less operating expenses: | |||||
Commissions to amusement houses | $ | 60,000 | |||
Insurance | 35,000 | ||||
Depreciation | 40,800 | ||||
Maintenance | 70,000 | 205,800 | |||
Net operating income | $ | 44,200 | |||
Garrison 16e Rechecks 2017-05-22
Exercise 13-8 Part 2
2a. Compute the simple rate of return promised by the games.
2b. If the company requires a simple rate of return of at least 10%, will the games be purchased?
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