Required information

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

$[$The following information applies to the questions displayed below.$]$

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 $$350,000,$ have a fifteen$-$year useful life, and have a

total salvage value of $$35,000.$ The company estimates that annual revenues and expenses associated with

the games would be as follows:

Revenues

Less operating expenses:

$$220,000$

Commissions to amusement houses $$90,000$

Insurance $20,000$

Depreciation $21,000$

Maintenance $,40,000$

Net operating income

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

Required:

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

$1$b$.$ Assume that 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?