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 $432,000, have a fifteen-year useful life, and have a total salvage value of $43,200. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $ 230,000 Less operating expenses: Commissions to amusement houses $ 70,000 Insurance 56,000 Depreciation 25,920 Maintenance 50,000 201,920 Net operating income $ 28,080 Garrison 16e Rechecks 2017-05-22 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?

2a. Compute the simple rate of return promised by the games.

2b. If the company requires a simple rate of return of at least 8%, will the games be purchased?