4 Required information Part 2 of2 [The following information applies to the ques

Question

4 Required information Part 2 of2 [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 $304,000, have a fifteen-year useful life, and have a total salvage value of $30,400. The company estimates that annual revenues and expenses associated with the games would be as follows: eBook Revenues Less operating expenses: $250,e00 Commissions to amusement houses Insurance Depreciation Maintenance 590,000 54,800 18,248 39,900 192,240 Net operating income 57,768 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? Complete this question by entering your answers in the tabs below Req 2A Req 2B Compute the simple rate of return promised by the games. (Round your answer to i decimal place. .e. 0.123 should be considered as 12.3%.) rate of return

Explanation / Answer

Answer:-

2 a. Calculation of simple rate of return:-

The simple rate of return would be:

Simple rate of return = Annual Incremental Net income / Initial Investment

= ($57,760 / $304,000) × 100 = 19%

2b.Answer :

Yes the pinball machines would be purchased. The simple rate of return of 19% exceeds 12%.

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