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The following information applies to the questions displayed below . ] Nicks Novelties, Incorporated, is considering the purchase of new electronic games to place in

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 $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 $ 200,000
Less operating expenses:
Commissions to amusement houses $ 60,000
Insurance 30,000
Depreciation 18,000
Maintenance 35,000 143,000
Net operating income $ 57,000

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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