Required information The following information applies to the questions displaye

Question

Required information The following information applies to the questions displayed below. Nick's Novelties, Inc., is considering the purchase of new electronic games to pl games would cost a total of $720,000, have a fifteen-year useful life, and have a total salvage value of $72,000. The ace in its amusement houses. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues Less operating expenses: $250,000 Commissions to amusement houses Insurance Depreciation Maintenance $80,000 40,000 43,200 40,000 203 200 Net operating income $ 46,800

Explanation / Answer

a) Simple rate of return = Net income*100/initial investment

                                      = 46800*100/720000

Simple rate of return = 6.5%

b) Yes, the game will be purchased

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