Reference no: EM131343190
Saitama Amusements Corporation places electronic games and other amusement devices in supermarkets and similar outlets throughout Japan. Saitama Amusements is investigating the purchase of a new electronic game called Mythical Marauders. The manufacturer will sell 20 games to Saitama Amusements for a total price of ¥199,000. (The Japanese currency is the yen, which is denoted by the symbol ¥.) Saitama Amusements has determined the following additional information about the game:
a. The game would have a five-year useful life and a negligible salvage value. The company uses straight-line depreciation.
b. The game would replace other games that are unpopular and generating little revenue. These other games would be sold for a total of ¥29,000.
c. Saitama Amusements estimates that Mythical Marauders would generate annual incremental revenues of ¥239,000 (total for all 20 games). Annual incremental out-of-pocket costs would be (in total): maintenance, ¥52,000; and insurance, ¥9,800. In addition, Saitama Amusements would have to pay a commission of 43% of total revenues to the supermarkets and other outlets in which the games were placed. (Ignore income taxes.)
Required:
1. Prepare a contribution format income statement showing the net operating income each year from Mythical Marauders.
2a. Compute the simple rate of return on Mythical Marauders. (Round percentage answer to 2 decimal places. i.e. 0.1234 should be considered as 12.34%.)
2b. Will the game be purchased if Saitama Amusements accepts any project with a simple rate of return greater than 11%?
Yes
No
3a. Compute the payback period on Mythical Marauders. (Round your answer to 2 decimal place.)
3b. If the company accepts any investment with a payback period of less than 5 years, will the game be purchased?
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