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Novelties, Inc., is considering the purchase of new electronic games to place in their fun...

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Accounting

Novelties, Inc., is considering the purchase of new electronic games to place in their fun houses. The games would cost a total of $392,000, have a useful life of fifteen years, and a total salvage value of $39,200. The company estimates that the annual revenue and expenses associated with the games would be as follows:

Income


ps300.000
Less operating expenses:





Commissions to fun housesps90.000



Safe
72,000



Depreciation
23,520



Maintenance

40.000



225,520









operating margin


ps

74,480









Required:

1a.

Calculate the payback period associated with new electronic games.




2a.

Calculate the simple rate of return promised by the games. 

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