[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 $592,000, have an fifteen-year useful life, and have a total salvage value of $59,200. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $ 300,000 Less operating expenses: Commissions to amusement houses $ 70,000 Insurance 66,000 Depreciation 35,520 Maintenance 90,000 261,520 Net operating income $ 38,480

Exercise 13-8 Part 1

Required:
1a.	Compute the pay back period associated with the new electronic games.

1b.

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

	No
	Yes

Garrison 15e Recheck 2014-12-29, 03_03_2015_QC_CS-9557

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Expanded tableExercise 13-8 Part 1

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3.

value: 10.00 points

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Exercise 13-8 Part 2

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 8%, will the games be purchased?

	No
	Yes