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Exercise 12-8 Payback Period and Simple Rate of Return [LO12-1, LO12-6]

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Nicks Novelties, Inc., 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 that annual revenues and expenses associated with the games would be as follows:

Revenues				$	300,000
Less operating expenses:
Commissions to amusement houses	$	60,000
Insurance		65,000
Depreciation		22,800
Maintenance		80,000			227,800
Net operating income				$	72,200

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?

I keep getting somewhere around half a year, not sure what I am doing wrong.

investment/(net operating income + depreciation) right?