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
[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 $300,000, have an eight-year useful life, and have a total salvage value of $20,000. The company estimates that annual revenues and expenses associated with the games would be as follows: |
Revenues | $ | 200,000 | ||||
Less operating expenses: | ||||||
Commissions to amusement houses | $ | 100,000 | ||||
Insurance | 7,000 | |||||
Depreciation | 35,000 | |||||
Maintenance | 18,000 | 160,000 | ||||
Net operating income | $ | 40,000 | ||||
4.
value: 8.00 points
Required information
2a. | Compute the simple rate of return promised by the games. (Round your answer to 1 decimal place. i.e. 0.123 should be considered as 12.3%.) |
2b. | If the company requires a simple rate of return of at least 12%, will the games be purchased? | ||||
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started