Required information
Exercise Algo Payback Period and Simple Rate of Return L LO
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 $ have a fifteenyear useful life, and have a total salvage value of $ 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
$
Exercise Part Algo
Required:
a Compute the payback period associated with the new electronic games.
b 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?
