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Nicks 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 $30,000. The company estimates that annual revenues and expenses associated with the games would be as follows:

Revenues				$	240,000
Less operating expenses:
Commissions to amusement houses	$	90,000
Insurance		30,000
Depreciation		33,750
Maintenance		60,000			213,750
Net operating income				$	26,250

1.

Compute the pay back period associated with the new electronic games. Choose Numerator / Choose Denominator = Payback Period. How many years?

2.

Compute the simple rate of return promised by the games