Question
Nicks Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $592,000,
Nicks Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $592,000, have a fifteen-year useful life, and have a total salvage value of $59,200. The company estimates that annual revenues and expenses associated with the games would be as follows:
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?
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