Exercise 13-8 Payback Period and Simple Rate of Return [LO13-1, LO13-6]

[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 $392,000, have a fifteen-year useful life, and have a total salvage value of $39,200. The company estimates that annual revenues and expenses associated with the games would be as follows:

Revenues				$	270,000
Less operating expenses:
Commissions to amusement houses	$	60,000
Insurance		52,000
Depreciation		23,520
Maintenance		60,000			195,520
Net operating income				$	74,480

Garrison 16e Rechecks 2017-05-22

Exercise 13-8 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?

Exercise 13-8 Payback Period and Simple Rate of Return (LO13-1, LO13-6] [The following information applies to the questions displayed below.] 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 $392,000, have a fifteen-year useful life, and have a total salvage value of $39,200. The company estimates that annual revenues and expenses associated with the games would be as follows: $ 270,000 Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance Net operating income $60,000 52,000 23,520 60,000 195,520 $ 74,480 Required: 1a. Compute the payback period associated with the new electronic games. 1b. Assume that Nick's 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? Complete this question by entering your answers in the tabs below. Req 1A Req 1B Compute the payback period associated with the new electronic games. Payback period Years Required: 1a. Compute the payback period associated with the new electronic games. 1b. Assume that Nick's 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? Complete this question by entering your answers in the tabs below. Req 1A Req 1B Assume that Nick's Novelties, Inc., will ot purchase new games unless they provide a payback period of five years or less. Would the company purchase the new games? Yes No