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 $672,000, have a fifteen-year useful life, and have a total salvage value of $67,200. 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 $260,000 $90,000 36,000 40,320 50,000 Depreciation Maintenance 216,320 $ 43,680 Net operating income 2a. Compute the simple rate of return promised by the games. 2b. If the company requires a simple rate of return of at least 5%, will the games be purchased?
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 $672,000, have a fifteen-year useful life, and have a total salvage value of $67,200. 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 $260,000 $90,000 36,000 40,320 50,000 Depreciation Maintenance 216,320 $ 43,680 Net operating income 2a. Compute the simple rate of return promised by the games. 2b. If the company requires a simple rate of return of at least 5%, will the games be purchased?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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