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Exercise $14-8($Algo$)$ Payback Period and Simple Rate of Return $[$L$014-1,$ LO$14-6]$

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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 $$380,000,$ have a fifteen$-$year useful life, and have a total salvage value of $$38,000.$ The

company estimates annual revenues and expenses associated with the games as follows:

Revenues

Less operating expenses:

Commissions to amusement houses

Insurance

Depreciation

Maintenance

Net operating income

$$300,000$

Exercise $14-8$ Part $1($Algo$)$

Required:

$1$a$.$ Compute the payback period associated with the new electronic games.

$1$b$.$ Assume Nick's 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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Compute the payback period associated with the new electronic games.