Question
Saitama Amusements Corporation places electronic games and other amusement devices in supermarkets and similar outlets throughout Japan. Saitama Amusements is investigating the purchase of a
Saitama Amusements Corporation places electronic games and other amusement devices in supermarkets and similar outlets throughout Japan. Saitama Amusements is investigating the purchase of a new electronic game called Mythical Marauders. The manufacturer will sell 20 games to Saitama Amusements for a total price of 197,000. (The Japanese currency is the yen, which is denoted by the symbol .) Saitama Amusements has determined the following additional information about the game: |
a. | The game would have a four-year useful life and a negligible salvage value. The company uses straight-line depreciation. |
b. | The game would replace other games that are unpopular and generating little revenue. These other games would be sold for a total of 28,500. |
c. | Saitama Amusements estimates that Mythical Marauders would generate annual incremental revenues of 237,000 (total for all 20 games). Annual incremental out-of-pocket costs would be (in total): maintenance, 51,500; and insurance, 9,700. In addition, Saitama Amusements would have to pay a commission of 44% of total revenues to the supermarkets and other outlets in which the games were placed. (Ignore income taxes.) |
Required: | |
1. | Prepare a contribution format income statement showing the net operating income each year from Mythical Marauders. |
2a. | Compute the simple rate of return on Mythical Marauders. (Round percentage answer to 2 decimal places. i.e. 0.1234 should be considered as 12.34%.) |
2b. | Will the game be purchased if Saitama Amusements accepts any project with a simple rate of return greater than 10%? | ||||
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3a. | Compute the payback period on Mythical Marauders. (Round your answer to 2 decimal place.) |
3b. | If the company accepts any investment with a payback period of less than 5 years, will the game be purchased? | ||||
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