Nicks Novelties, Incorporated, is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $175,000, have a fifteen-year useful life, and have a total salvage value of $17,500. 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	$ 80,000
Insurance	25,000
Depreciation	10,500
Maintenance	60,000	175,500
Net operating income		$ 24,500

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?