Required information

Exercise $14-8($Algo$)$ Payback Period and Simple Rate of Return $[$LO$14-1,$ LO$14-6]$

Skip to question

$[$The following information applies to the questions displayed below.$]$

Nick$$s Novelties, Incorporated, is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $$392,000,$ have a fifteen$-$year useful life, and have a total salvage value of $$39,200.$ The company estimates annual revenues and expenses associated with the games as follows:

Revenues$$$ $270,000$Less operating expenses:$$Commissions to amusement houses$ $60,000$Insurance$52,000$Depreciation$23,520$Maintenance$60,000195,520$Net operating income$$$ $74,480$

Exercise $14-8$ Part $2($Algo$)$

$2$a$.$ Compute the simple rate of return promised by the games.

$2$b$.$ If the company requires a simple rate of return of at least $13\%,$ will the games be purchased?