Saitama Amusements Corporation places electronic games and other amusement devic
ID: 2786370 • Letter: S
Question
Saitama Amusements Corporation places electronic games and other amusement devices in supermarkets and similar outlets throughout Japan. Saitama Amusements is investigating the purchase of a new electronic game called Mythical Marauders. The manufacturer will sell 20 games to Saitama Amusements for a total price of ¥167,000. (The Japanese currency is the yen, which is denoted by the symbol .) Saitama Amusements has determined the following additional information about the game a. The game would have a five-year useful life and a negligible salvage value. The company uses straight line depreciation b. The game would replace other games that are unpopular and generating little revenue. These other games would be sold for a total of$21,000 c. Saitama Amusements estimates that Mythical Marauders would generate annual incremental revenues of ¥207,000 (total for all 20 games). Annual incremental out-of-pocket costs would be (in total) maintenance, 44,000; and insurance, 8,200. In addition, Saitama Amusements would have to pay a commission of 43% of total revenues to the supermarkets and other outlets in which the games were placed. (lgnore income taxes.) Required 1. Prepare a contribution format income statement showing the net operating income each year from Mythical Marauders Saitama Amusements Corporation Fixed expenses Total fixed expense 2a. Compute the simple rate of return on Mythical Marauders. (Round percentage answer to 2 decimal places. i.e. 0.1234 should be considered as 12.34%.) Simple rate of returnExplanation / Answer
Answer 1)
Income Statement
Revenue
207000
Less Variable cost
Commission
89010
(207000 x 43/100)
Contribution
117990
Less Fixed Cost
Maintenance
44000
Insurance
8200
Dep
33400
85600
(167000/5)
Operating Income
32390
Sale of Old Game
21000
Net Income
53390
Answer 2)
A)
Rate of Return = Return from ordinary business/investment made
Return from ordinary businiss
32390
Investment
167000
ROR
19%
32390/167000 * 100
b) Yes the project should be accepted as the return from the project is more than the required return.
Answer 3)
A)
Statement showing Cash flows
Project A
Particulars
Time
Amount
Cumm Cashflows
Cash Outflows
-
(1,46,000.00)
(1,46,000.00)
Cash inflows
1
65,790.00
65,790.00
Cash inflows
2
65,790.00
1,31,580.00
Cash inflows
3
65,790.00
1,97,370.00
Cash inflows
4
65,790.00
2,63,160.00
Cash inflows
5
65,790.00
3,28,950.00
Payback period falls in Year 2 and Year 3.
=(Initial Investment – Cumulative Cash Flow of year 2)/cash flows of year 3
=(146000-131580)/65790=2.22 years or 2 years 2 months
B) Yes if the investment should be done as the pay back period is 2.22 yrs
Income Statement
Revenue
207000
Less Variable cost
Commission
89010
(207000 x 43/100)
Contribution
117990
Less Fixed Cost
Maintenance
44000
Insurance
8200
Dep
33400
85600
(167000/5)
Operating Income
32390
Sale of Old Game
21000
Net Income
53390
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