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 $30,000. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $ 240,000Less operating expenses: Commissions to amusement houses$ 90,000 Insurance30,000 Depreciation18,000 Maintenance60,000198,000Net operating income $ 42,000 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?

The number of years needed to recover the initial investment is known as the payback period. Because…

Answered: ties, Incorporated, is considering the…

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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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 $30,000. The company estimates that annual revenues and expenses associated with the games would be as follows:

Revenues		$ 240,000
Less operating expenses:
Commissions to amusement houses	$ 90,000
Insurance	30,000
Depreciation	18,000
Maintenance	60,000	198,000
Net operating income		$ 42,000

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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