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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

Nicks Novelties, Incorporated, is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $385,000, have a fifteen-year useful life, and have a total salvage value of $38,500. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $ 280,000
Less operating expenses:
Commissions to amusement houses $ 80,000
Insurance 53,000
Depreciation 23,100
Maintenance 70,000226,100
Net operating income $ 53,900
Required:
1a. Compute the payback period associated with the new electronic games.
1b. Assume that Nicks 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?

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