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 $332,000, have a fifteen-year useful life, and have a total salvage value of $33,200. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $ 280,000 Less operating expenses: Commissions to amusement houses $ 80,000 Insurance 57,000 Depreciation 19,920 Maintenance 60,000 216,920 Net operating income $ 63,080 Garrison 16e Rechecks 2017-05-22 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 12%, will the games be purchased?
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 $332,000, have a fifteen-year useful life, and have a total salvage value of $33,200. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $ 280,000 Less operating expenses: Commissions to amusement houses $ 80,000 Insurance 57,000 Depreciation 19,920 Maintenance 60,000 216,920 Net operating income $ 63,080 Garrison 16e Rechecks 2017-05-22 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 12%, will the games be purchased?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 $332,000, have a fifteen-year useful life, and have a total salvage value of $33,200. The company estimates that annual revenues and expenses associated with the games would be as follows:
| Revenues | $ | 280,000 | |||
| Less operating expenses: | |||||
| Commissions to amusement houses | $ | 80,000 | |||
| Insurance | 57,000 | ||||
| 19,920 | |||||
| Maintenance | 60,000 | 216,920 | |||
| Net operating income | $ | 63,080 | |||
Garrison 16e Rechecks 2017-05-22
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 12%, will the games be purchased?
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