[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 $350,000, have an eight-year useful life, and have a total salvage value of $35,000. The company estimates that annual revenues and expenses associated with the games would be as follows:

Revenues				$	220,000
Less operating expenses:
Commissions to amusement houses	$	90,000
Insurance		20,000
Depreciation		39,375
Maintenance		40,000			189,375
Net operating income				$	30,625

Required information

1a.

Compute the pay back period associated with the new electronic games.

Payback Period
Choose Numerator:	/	Choose Denominator:	=	Payback Period
	/		=	Payback period
	/		=		years

1b.

Assume that Nicks Novelties, Inc., will not purchase new games unless they provide a payback period of 6 years or less. Would the company purchase the new games?

	Yes
	No

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%.)

Simple rate of return

%

2b.

If the company requires a simple rate of return of at least 12%, will the games be purchased?

	No
	Yes