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Nick's Novelties, Inc

Management

Nick's Novelties, Inc. is considering the purchase of electronic pinball machines to place in game arcades. The machines would cost a total of $500,000, have an eight-year useful life, and have a total salvage value of $30,000. The company estimated that annual revenues and expenses associated with the machines would be as follows:

Revenues $230, OM Operating expenses: CommIssions to game arcades .$110,,: 0,01(3, Insurance Depreciation 58, 750 Maintenance 18, 000 194, 750 Net operating income $ 41, 250 

1-a. Compute the payback period. (Round your answer to 1 decimal place.)

 2-a. Compute the simple rate of return promised by the pinball machines. (Round your answer to 1 decimal place. (i.e., 0.1234 should be considered as 12.3%).)

?3-a. If Nick's Novelties, Inc. has a discount rate of 17%, what is the NPV of this investment? (Hint: Identify the relevant costs and then perform an NPV analysis.) (Negative amount should be indicated with a minus sign. Round discount factor(s) to 3 decimal places.)

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