Nicks Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $240,000, have a fifteen-year useful life, and have a total salvage value of $24,000. The company estimates that annual revenues and expenses associated with the games would be as follows:

Revenues				$	250,000
Less operating expenses:
Commissions to amusement houses	$	90,000
Insurance		30,000
Depreciation		14,400
Maintenance		70,000			204,400
Net operating income				$	45,600

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?