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 $332,000, have a fifteen-year useful life, and have a total salvage value of $33,200. 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 $ 80,000 57,000 19,920 60,000 $ 280,000 216,920 $ 63,080

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Exercise 14-8 (Algo) Payback Period and Simple Rate of Return [LO14-1, LO14-6]
[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 $332,000, have a fifteen-year useful life, and have a total salvage value of $33,200. The
company estimates that annual revenues and expenses associated with the games would be as follows:
$ 280,000
Revenues
Less operating expenses:
Commissions to amusement houses
Insurance
Depreciation
Maintenance
Net operating income
Exercise 14-8 Part 1 (Algo)
$ 80,000
57,000
19,920
60,000
216,920
$ 63,080
Required:
1a. Compute the payback period associated with the new electronic games.
1b. 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?
Transcribed Image Text:! Required information Exercise 14-8 (Algo) Payback Period and Simple Rate of Return [LO14-1, LO14-6] [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 $332,000, have a fifteen-year useful life, and have a total salvage value of $33,200. The company estimates that annual revenues and expenses associated with the games would be as follows: $ 280,000 Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance Net operating income Exercise 14-8 Part 1 (Algo) $ 80,000 57,000 19,920 60,000 216,920 $ 63,080 Required: 1a. Compute the payback period associated with the new electronic games. 1b. 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?
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