Nick's Novelties, Inc. is considering the purchase of electronic pinball machines to place in game arcades. The machines would cost a total of $400,000, have an eight-year useful life, and have a total salvage value of $20,000. The company estimated that annual revenues and expenses associated with the machines would be as follows: Revenues Operating expenses: Commissions to game arcades $282,000 Insurance Depreciation Maintenance $175,000 9,000 47,500 18,000 249, 500 $32,500 Net operating income Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. Required: 1-a. Compute the payback period. (Round your answer to 1 decimal place.) Payback period years 1-b. Assume that Nick's Novelties, Inc. will not purchase new equipment unless it provides a payback period of 6 years or less. Will the company purchase the pinball machines? O Yes O No 2-a. If Nick's Novelties, Inc. has a discount rate of 19%, what is the NPV of this investment? (Hint. Identify the relevant costs and then tive omeunt should be indicated with a minus šian. Round discount factor(s) to 3 decimal places.)

Nick's Novelties, Inc. is considering the purchase of electronic pinball machines to place in game arcades. The machines would cost a total of $400,000, have an eight-year useful life, and have a total salvage value of $20,000. The company estimated that annual revenues and expenses associated with the machines would be as follows: Revenues Operating expenses: Commissions to game arcades $282,000 Insurance Depreciation Maintenance $175,000 9,000 47,500 18,000 249, 500 $32,500 Net operating income Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. Required: 1-a. Compute the payback period. (Round your answer to 1 decimal place.) Payback period years 1-b. Assume that Nick's Novelties, Inc. will not purchase new equipment unless it provides a payback period of 6 years or less. Will the company purchase the pinball machines? O Yes O No 2-a. If Nick's Novelties, Inc. has a discount rate of 19%, what is the NPV of this investment? (Hint. Identify the relevant costs and then tive omeunt should be indicated with a minus šian. Round discount factor(s) to 3 decimal places.)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 18P: Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting...

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

100%

1-b. Assume that Nick's Novelties, Inc. will not purchase new equipment unless it provides a payback period of 6 years or less. Will the
company purchase the pinball machines?
O Yes
O No
2-a. If Nick's Novelties, Inc. has a discount rate of 19%, what is the NPV of this investment? (Hint Identify the relevant costs and then
perform an NPV analysis.) (Negative amount should be indicated with a minus sign. Round discount factor(s) to 3 decimal places.)
Net present value
2-b. Should the company purchase the pinball machines?
O No
O Yes

Nick's Novelties, Inc. is considering the purchase of electronic pinball machines to place in game arcades. The machines would cost a
total of $400,000, have an eight-year useful life, and have a total salvage value of $20,000. The company estimated that annual
revenues and expenses associated with the machines would be as follows:
Revenues
Operating expenses:
Commissions to game arcades
$282,000
$175,000
9,000
47,500
18,000
Insurance
Depreciation
Maintenance
249,500
$ 32,500
Net operating income
Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables.
Required:
1-a. Compute the payback period. (Round your answer to 1 decimal place.)
Payback period
years
1-b. Assume that Nick's Novelties, Inc. will not purchase new equipment unless it provides a payback period of 6 years or less. Will the
company purchase the pinball machines?
O Yes
O No
2-a. If Nick's Novelties, Inc. has a discount rate of 19%, what is the NPV of this investment? (Hint Identify the relevant costs and then
NPY analysis.) (Neaative amount should be indicated with a minus šian. Round discount factor(s) to 3 decimal places.)

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