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 an eight-year useful life, and have a total salvage value of $20,000. 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 $ 100,000       Insurance   7,000       Depreciation   35,000       Maintenance   18,000     160,000 Net operating income       $ 40,000     Garrison 16e Rechecks 2017-05-22 Garrison 16e Rechecks 2018-09-25   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?

EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter10: Project Cash Flows And Risk
Section: Chapter Questions
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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 an eight-year useful life, and have a total salvage value of $20,000. 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 $ 100,000      
Insurance   7,000      
Depreciation   35,000      
Maintenance   18,000     160,000
Net operating income       $ 40,000
 

 

Garrison 16e Rechecks 2017-05-22

Garrison 16e Rechecks 2018-09-25

 

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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