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Required information Skip to question [The following information applies to the questions displayed below.] Nicks Novelties, Incorporated, is considering the purchase of new electronic games
Required information Skip to question [The following information applies to the questions displayed below.] Nicks Novelties, Incorporated, is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $720,000, have a fifteen-year useful life, and have a total salvage value of $72,000. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $ 250,000 Less operating expenses: Commissions to amusement houses $ 80,000 Insurance 40,000 Depreciation 43,200 Maintenance 40,000 203,200 Net operating income $ 46,800 Required: 1a. Compute the payback period associated with the new electronic games. 1b. Assume that Nicks 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?
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