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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 $300,000, have a fifteen-year useful life, and have a total salvage value of $30,000. The company estimates that annual revenues and expenses associated with the games would be as follows:

Revenues$200,000Less operating expenses:Commissions to amusement houses$60,000Insurance30,000Depreciation18,000Maintenance35,000143,000Net operating income$57,000

Garrison 16e Rechecks 2017-05-22

Required:

1a. Compute the pay back 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?