Required information Exercise 12 8 Payback Period and Simple Rate of Return LO12 1, LO12 6 The following information applies to the questions displayed below Nicks Novelties, Inc , is considering the purchase of new electronic games to place in its amusement houses The games would cost a total of $392,000, have a fifteen year useful life, and have a total salvage value of $39,200 The company estimates that annual revenues and expenses associated with the games would be as follows Revenues $ 270,000 Less operating expenses Commissions to amusement houses $ 60,000 Insurance 52,000 Depreciation 23,520 Maintenance 60,000 195,520 Net operating income $ 74,480 Exercise 12 8 Part 1 Required 1a Compute the payback period associated with the new electronic games (In years) 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 (Yes No)

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Required information Exercise 12-8 Payback Period and Simple Rate of Return [LO12-1, LO12-6] [ The following information applies to the questions displayed below .] Nicks

Required information

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

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

Nicks Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $392,000, have a fifteen-year useful life, and have a total salvage value of $39,200. The company estimates that annual revenues and expenses associated with the games would be as follows:


Revenues			$	270,000
Less operating expenses:
Commissions to amusement houses	$	60,000
Insurance		52,000
Depreciation		23,520
Maintenance		60,000		195,520
Net operating income			$	74,480

Exercise 12-8 Part 1

Required:

1a. Compute the payback period associated with the new electronic games. (In years)

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? (Yes/No)