Nick's Novelties, Incorporated, isconsidering the purchase of newelectronic games to place in itsamusement houses. The games wouldcost a total of $175,000, have a fifteen-year useful life, and have a totalsalvage value of $17,500. The companyestimates that annual revenues andexpenses associated with the gameswould be as follows:RevenuesLess operatingexpenses:Commissions to$80,000amusementhousesInsurance 25,000DepreciationMaintenanceNet operatingincome10,500$200,00060,000 175,500$ 24,500Required:1a. Compute the payback periodassociated with the new electronicgames.1b. Assume that Nick's Novelties,Incorporated, will not purchase newgames unless they provide a paybackperiod of five years or less. Would thecompany purchase the new games?

PAYBACK PERIOD Payback Period is one of the important Capital Budgeting Technique. Payback Period is…

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 $175,000, have a fifteen- year useful life, and have a total salvage value of $17,500. 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 $ 80,000 25,000 Depreciation 10,500 Maintenance Net operating income Required: $ 200,000 60,000 175,500 $ 24,500

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 $175,000, have a fifteen- year useful life, and have a total salvage value of $17,500. 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 $ 80,000 25,000 Depreciation 10,500 Maintenance Net operating income Required: $ 200,000 60,000 175,500 $ 24,500

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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