Required information exercise 12-8 payback period and simple rate of return [lo12-1, lo12-6] [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 $45,000. the company estimates that annual revenues and expenses associated with the games would be as follows: revenues $ 200,000 less operating expenses: commissions to amusement houses $ 60,000 insurance 40,000 depreciation 17,000 maintenance 50,000 167,000 net operating income $ 33,000 exercise 12-8 part 1 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? 2a. compute the simple rate of return promised by the games. 2b. if the company requires a simple rate of return of at least 10%, will the games be purchased?
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