**Analysis of Investment for New Electronic Games****Overview:**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 a total salvage value of $30,000. The company estimates that annual revenues and expenses associated with the games would be as follows:**Financial Breakdown:**- **Revenues:** $200,000- **Less Operating Expenses:** - Commissions to amusement houses: $60,000 - Insurance: $30,000 - Depreciation: $18,000 - Maintenance: $35,000 - **Total Operating Expenses:** $143,000- **Net Operating Income:** $57,000**Questions for Consideration:**2a. **Compute the Simple Rate of Return:** Calculate the expected rate of return from the investment in electronic games.2b. **Investment Decision:** Determine if the games will be purchased given a required simple rate of return of at least 11%.**Action Required:**- Complete the calculation of the simple rate of return using the formulas provided. Input your answers in the provided tabs.**Notes for Calculation:**- **Simple Rate of Return Formula:** \[ \text{Simple Rate of Return} = \left( \frac{\text{Net Operating Income}}{\text{Initial Investment}} \right) \times 100 \]- **Net Operating Income:** $57,000- **Initial Investment:** $300,000Use these figures to solve for the simple rate of return, rounding to one decimal place as necessary. **Required Information***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:**Revenues**- Total: $200,000**Less Operating Expenses:**- Commissions to amusement houses: $60,000- Insurance: $30,000- Depreciation: $18,000- Maintenance: $35,000- Total Expenses: $143,000**Net Operating Income**- Total: $57,000**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?

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Description: **Analysis of Investment for New Electronic Games****Overview:**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, a

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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: Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance $200,000 $60,000 30, 000 18,000 35,000 143, 000 $ 57,000 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 11%, will the games be purchased? Complete this question by entering your answers in the tabs below. Req 2A Reg 2B Compute the simple rate of return promised by the games. (Round your answer to 1 decimal place. i.e. 0.123 should be considered as 12.3%.) Simple rate of return

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: Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance $200,000 $60,000 30, 000 18,000 35,000 143, 000 $ 57,000 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 11%, will the games be purchased? Complete this question by entering your answers in the tabs below. Req 2A Reg 2B Compute the simple rate of return promised by the games. (Round your answer to 1 decimal place. i.e. 0.123 should be considered as 12.3%.) Simple rate of return

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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