EXERCISE $14-8$ Payback Period and Simple Rate of Return $$ LO$14-1,$ LO$14-6$

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 annual revenues and expenses

associated with the games as follows:

Required:

What is the payback period for the new electronic games? Assume Nick's Novelties, Inc., will not purchase new games unless they

provide a payback period of five years or less. Would the company purchase the new games?

What is the simple rate of return promised by the games? If the company requires a simple rate of return of at least $12\%,$ will the games

be purchased?