80.2K

Verified Solution

Link Copied!

[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 $325,000, have a fifteen year useful life, and have a total salvage value of $32,500. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance Net operating income $220.000 $60,000 55,000 19,500 40,000 174,500 $ 45,500 Exercise 14-8 Part 1 (Algo) Required: 1a Compute the payback 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? Complete this question by entering your answers in the tabs below. V (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 $325,000, have a fifteen-year useful life, and have a total salvage value of $32,500. The company estimates that annual revenues and expenses associated with the games would be as follows: $220,000 Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance Net operating income $60,000 55,000 19,500 40,000 174,500 $ 45,500 Exercise 14-8 Part 2 (Algo) 2a. Compute the simple rate of return promised by the games. 2b. If the company requires a simple rate of return of at least 15%, will the games be purchased

Answer & Explanation Solved by verified expert

See Answer