Nick's Novelties, Inc., is considering the purchase of electronic pinball machines to place in amusement houses. The machines would cost a total of $545,000, have an 17-year useful life, and have a total salvage value of $18,000. The company estimates that annual revenues and expenses associated with the machines would be as follows (Ignore income taxes): Revenues $258,000 Less operating expenses: Commissions to amusement houses $35,000 Insurance 85,000 Depreciation 31,000 Maintenance 34,000 185,000 Net operating income $73,000.
Requirement 1: (a) Compute the pay back period associated with the pinball machines. (Round your answer to 2 decimal places.) Payback period years=____ (b) Assume that Nick´s Novelties, Inc., will not purchase new equipment unless it provides a payback period of five years or less. Does the company purchase the pinball machines? (Click to select)YesNo Requirement 2: (a) Compute the simple rate of return promised by the pinball machines. (Round your answer to the nearest whole percent. Omit the "%" sign in your response.) Simple rate of return % =_____ (b) If Nick´s Novelties, Inc., requires a simple rate of return of at least 12%, does the pinball machines get purchased?