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[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
[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 $392,000, have an eight-year useful life, and have a total salvage value of $39,200. The company estimates that annual revenues and expenses associated with the games would be as follows: $270,000 Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance $60,000 52,000 44,100 60,000 216,100 Net operating income $ 53,900 6. value: 1.50 points Required: 1a.Compute the pay back period associated with the new electronic games. Choose Numerator: Payback Period Choose halb Payback Period Denominator: 7= Payback period year 1b. Assume that Nick's Novelties, Inc., will not purchase new games unless they provide a payback period of 11 years or less. Would the company purchase the new games? Yes value: 1.50 points 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%.) Simple rate of return 2b. If the company requires a simple rate of return of at least 13%, will the games be purchased? Yes No
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