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Exercise $7-8($Algo$)$ Payback Period and Simple Rate of Return $[$LO$7-1,$ LO$7-6]$

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Nick$$s Novelties, Incorporated, is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $$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 $ $300,000$

Less operating expenses:

Commissions to amusement houses $ $90,000$

Insurance $72,000$

Depreciation $23,520$

Maintenance $40,000225,520$

Net operating income $ $74,480$

Exercise $7-8$ 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?