Exercise 14-8 (Static) Payback Period and Simple Rate of Return [LO14-1, LO14-6] [The following information applies to the questions displayed below.] 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 an eight-year useful life, and have a total salvage value of $20,000. 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 $100,000 7,000 35,000 18,000 Insurance Depreciation Maintenance 160,000 Net operating income $ 40,000 Exercise 14-8 Part 1 (Static) Required: la. Compute the payback period associated with the new electronic games. 1b. Assume that Nick's Novelties, Ic., will not purchase new games unless they provide a payback period of five years or less. Would the company purchase the new games?
Exercise 14-8 (Static) Payback Period and Simple Rate of Return [LO14-1, LO14-6] [The following information applies to the questions displayed below.] 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 an eight-year useful life, and have a total salvage value of $20,000. 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 $100,000 7,000 35,000 18,000 Insurance Depreciation Maintenance 160,000 Net operating income $ 40,000 Exercise 14-8 Part 1 (Static) Required: la. Compute the payback period associated with the new electronic games. 1b. Assume that Nick's Novelties, Ic., will not purchase new games unless they provide a payback period of five years or less. Would the company purchase the new games?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![Required information
Exercise 14-8 (Static) Payback Period and Simple Rate of Return [LO14-1, LO14-6]
[The following information applies to the questions displayed below.]
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 an eight-year useful life, and have a total salvage value of $20,000. The company
estimates that annual revenues and expenses associated with the games would be as follows:
Revenues
$200,000
Less operating expenses:
$100,000
7,000
35,000
Commissions to amusement houses
Insurance
Depreciation
160,000
$ 40,000
Maintenance
18,000
Net operating income
Exercise 14-8 Part 1 (Static)
Required:
la. Compute the payback period associated with the new electronic games.
1b. Assume that Nick's Novelties, Ic., will not purchase new games unless they provide a payback period of five years or less. Would
the company purchase the new games?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1615ba51-1445-4e50-aa58-9b9340f7c3f8%2Ffe02d7e7-b8e7-4b33-b50c-398581c1dccb%2Fa58pu_processed.png&w=3840&q=75)
Transcribed Image Text:Required information
Exercise 14-8 (Static) Payback Period and Simple Rate of Return [LO14-1, LO14-6]
[The following information applies to the questions displayed below.]
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 an eight-year useful life, and have a total salvage value of $20,000. The company
estimates that annual revenues and expenses associated with the games would be as follows:
Revenues
$200,000
Less operating expenses:
$100,000
7,000
35,000
Commissions to amusement houses
Insurance
Depreciation
160,000
$ 40,000
Maintenance
18,000
Net operating income
Exercise 14-8 Part 1 (Static)
Required:
la. Compute the payback period associated with the new electronic games.
1b. Assume that Nick's Novelties, Ic., 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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