Question
Required information Exercise 13-8 Payback Period and Simple Rate of Return [LO13-1, LO13-6] [The following information applies to the questions displayed below.] Nick's Novelties, Inc.,
Required information Exercise 13-8 Payback Period and Simple Rate of Return [LO13-1, LO13-6] [The following information applies to the questions displayed below.] Nick's Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $592,000, have a fifteen-year useful life, and have a total salvage value of $59,200. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues Less operating expenses: $300,000 Commissions to amusement houses Insurance $70,000 66,000 Depreciation 35,520 Maintenance 90,000 Net operating income 261,520 $ 38,480 Exercise 13-8 Part 1 Required: 1a. Compute the payback period associated with the new electronic games. 1b. Assume that Nick's 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? Check
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