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 $300,000, have an eight-year useful life, and have a total salvage value of $20,000. Thecompany estimates that annual revenues and expenses associated with the games would be as follows:RevenuesLess operating expenses:$ 200,000Commissions to amusement houses.Insurance$ 100,0007,000Depreciation35,000Maintenance18,000160,000Net operating income$ 40,0002a. Compute the simple rate of return promised by the games.2b. If the company requires a simple rate of return of at least 12%, will the games be purchased?

Computing the Simple Rate of Return and Purchase Decision2a. Simple Rate of ReturnTo compute the…

Answered: Nick's Novelties, Incorporated, is…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 18EB: Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the...

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The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $190,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $87,000 per year; and Machine 360-6, which has a cost of $360,000, a 6-year life, and after-tax cash flows of $98,300 per year. Knitting machine prices are not expected to rise because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins’ cost of capital is 14%. Should the firm replace its old knitting machine? If so, which new machine should it use? By how much would the value of the company increase if it accepted the better machine? What is the equivalent annual annuity for each machine?
Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
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 $425,000, have a fifteen-year useful life, and have a total salvage value of $42,500. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $ 220,000Less operating expenses: Commissions to amusement houses$ 70,000 Insurance25,000 Depreciation25,500 Maintenance40,000160,500Net operating income $ 59,500 Required: 1a. Compute the payback period (in years) associated with the new electronic games. 2a. Compute the simple rate of return promised by the games. (a percentage)
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 $300,000, have a fifteen-year useful life, and have a total salvage value of $30,000. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $ 240,000 Less operating expenses: Commissions to amusement houses $ 90,000 Insurance 30,000 Depreciation 18,000 Maintenance 60,000 198,000 Net operating income $ 42,000 Required: 1a. Compute the payback period associated with the new electronic games. 1b. Assume that Nick’s Novelties, Incorporated, will not purchase new games unless they provide a payback period of five years or less. Would the company purchase the new games?
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 $300,000, have a fifteen-year useful life, and have a total salvage value of $30,000. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $ 240,000 Less operating expenses: Commissions to amusement houses $ 90,000 Insurance 30,000 Depreciation 18,000 Maintenance 60,000 198,000 Net operating income $ 42,000 2a. Compute the simple rate of return promised by the games. 2b. If the company requires a simple rate of return of at least 12%, will the games be purchased?
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 $175,000, have a fifteen- year useful life, and have a total salvage value of $17,500. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues Less operating expenses: Commissions to $ 80,000 amusement houses Insurance 25,000 Depreciation Maintenance Net operating income 10,500 $ 200,000 60,000 175,500 $ 24,500 Required: 1a. Compute the payback period associated with the new electronic games. 1b. Assume that Nick's Novelties, Incorporated, will not purchase new games unless they provide a payback period of five years or less. Would the company purchase the new games?
Nick's Novelties, Inc. is considering the purchase of electronic pinball machines to place in game arcades. The machines would cost a total of $400,000, have an eight-year useful life, and have a total salvage value of $20,000. The company estimated that annual revenues and expenses associated with the machines would be as follows: Revenues Operating expenses: Commissions to game arcades $282,000 $175,000 9,000 47,500 18,000 Insurance Depreciation Maintenance 249,500 $ 32,500 Net operating income Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. Required: 1-a. Compute the payback period. (Round your answer to 1 decimal place.) Payback period years 1-b. Assume that Nick's Novelties, Inc. will not purchase new equipment unless it provides a payback period of 6 years or less. Will the company purchase the pinball machines? O Yes O No 2-a. If Nick's Novelties, Inc. has a discount rate of 19%, what is the NPV of this investment?…
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 atotal salvage value of $20,000. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues............................................................. $200,000 Less operating expenses: Commissions to amusement houses................ $100,000 Insurance........................................................... 7,000 Depreciation...................................................... 35,000 Maintenance...................................................... 18,000 160,000 Net operating income $ 40,000 2.1 Assume that Nick's Novelties, Inc.,…
[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 $672,000, have a fifteen-year useful life, and have a total salvage value of $67,200. The company estimates that annual revenues and expenses associated with the games would be as follows: $ 260,000 Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance: Net operating income ONO Yes Required: 1a. Compute the payback period associated with the new electronic games. 1b. Assume that Nick's Novelties, Incorporated, will not purchase new games unless they provide a payback period of five years or less. Would the company purchase the new games? Complete this question by entering your answers in the tabs below. $ 90,000 36,000 40,320 50,000 Req 18 Req 1A Assume that Nick's Novelties, Incorporated, will not purchase new games unless…
[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 $310,000, have a fifteen-year useful life, and have a total salvage value of $31,000. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance Net operating income Exercise 12-8 Part 2 (Algo) Complete this question by entering your answers in the tabs below. Req 2A $ 90,000 58,000 18,600 70,000 2a. Compute the simple rate of return promised by the games. 2b. If the company requires a simple rate of return of at least 13%, will the games be purchased? Req 2B

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