Nicks Novelties, Incorporated, is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $425,000, have a fifteen-year useful life, and have a total salvage value of $42,500. The company estimates that annual revenues and expenses associated with the games would be as follows:

Revenues		$ 220,000
Less operating expenses:
Commissions to amusement houses	$ 70,000
Insurance	25,000
Depreciation	25,500
Maintenance	40,000	160,500
Net operating income		$ 59,500

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?