Required information

Exercise $12-8($Algo$)$ Payback Period and Simple Rate of Return $[$L$012-1,$ LO$12-6]$

$[$The following information applies to the questions displayed below.$]$

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 $$300,000,$ have a fifteen$-$year useful life, and have a total salvage value of $$45,000.$ 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

$$200,000$

Exercise $12-8$ Part $1($Algo$)$

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?