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Required information Exercise 12-8(Algo) Payback Period and Simple Rate of Return [L012-1, LO12-6] ...

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Accounting

Required information
Exercise 12-8(Algo) Payback Period and Simple Rate of Return [L012-1, LO12-6]
[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 $300,000, have a fifteen-year useful life, and have a total salvage value of $45,000. 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
$200,000
Exercise 12-8 Part 1(Algo)
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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