[The following information applies to the questions displayed below.] Nick’s Nov

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[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 $325,000, have an fifteen-year useful life, and have a total salvage value of $32,500. The company estimates that annual revenues and expenses associated with the games would be as follows:

The following Information applies to the questions displayed below.J 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 $325,000, have an fifteen-year useful life, and have a total salvage value of $32,500. The company estimates that annual revenues and expenses assoclated with the games would be as follows: Revenues $220,000 Less operating expenses: Commissions to amusement $60,000 houses Insurance Depreclation Malntenance 55,000 19,500 40,000 174,500 Net operating Income $45,500 value: 8.00 points Required: 1a. Compute the pay back period associated with the new electronic games Payback Period Choose Numerator: Choose Denominator:Payback Period Payback period years

Explanation / Answer

Net annual cash inflow = 45500+19500 = $65000 a Investment required/Annual net cash inflow = Payback period 325000/65000= 5 years b Yes 2a Simple rate of return = Annual incremental net income/Initial investment = 45500/325000= 14% b No

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