Exercise 12-8 Payback Period and Simple Rate of Return [LO12-1, LO12-6] Skip to question [The following information applies to the questions displayed below.] Nicks 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 a total 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 Exercise 12-8 Part 1 Required: 1a. Compute the payback period associated with the new electronic games. 1b. Assume that Nicks Novelties, Inc., 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 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. The company estimates that annual revenues and expenses associated with the games would be as follows: Exercise 12-8 Part 1 Required: a. Compute the payback period associated with the new electronic games. b. Assume that Nick's Novelties, Inc., will not purchase new games unless they provide a payback period of five years or less. Woulc he company purchase the new games? Complete this question by entering your answers in the tabs below. Compute the payback period associated with the new electronic games