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Nicks 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 an 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

Garrison 15e Recheck 2014-12-29, 03_03_2015_QC_CS-9557

1.

value: 2.50 points

Required information

Required:
1a.	Compute the pay back period associated with the new electronic games.

Windhoek Mines, Ltd., of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area:

Cost of new equipment and timbers	$	480,000
Working capital required	$	170,000
Annual net cash receipts	$	185,000*
Cost to construct new roads in three years	$	54,000
Salvage value of equipment in four years	$	79,000

*Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth.

The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The companys required rate of return is 18%.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Required:
a.	Determine the net present value of the proposed mining project. (Any cash outflows should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s).)