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Required information Exercise 13-8 Payback period and Simple Rate of Return (LO13-1, LO13-6) [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 $300,000, have a fifteen-year useful life, and have a total salvage value of $30,000. The company estimates that annual revenues and expenses associated with the games would be as follows: $ 200,000 Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance Net operating income $60,000 30,000 18,000 35,000 143,000 $ 57,000 Exercise 13-8 Part 1 Required: 1a. Compute the pay back period associated with the new electronic games. 1b. Assume that Nick's 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? Exercise 13-8 Payback period and Simple Rate of Return (LO13-1, LO13-6) [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 $300,000, have a fifteen-year useful life, and have a total salvage value of $30,000. The company estimates that annual revenues and expenses associated with the games would be as follows: $ 200,000 Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance Net operating income $ 60,000 30,000 18,000 35,000 143,000 $ 57,000 Exercise 13-8 Part 2 2a. Compute the simple rate of return promised by the games. 2b. If the company requires a simple rate of return of at least 11%, will the games be purchased

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