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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 $$385,000,$ have a fifteen$-$year useful life, and have a total salvage value of $$38,500.$ The

company estimates that annual revenues and expenses associated with the games would be as follows:

Revenues

Less operating expenses:

Commissions to amusement houses

Insurance

Depreciation

Maintenance

Net operating income

$$280,000$

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?

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Compute the payback period associated with the new electronic games.