Required information Exercise 12-8 (Algo) Payback Period and Simple Rate of Return [LO12-1, 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 $392,000, have a fifteen-year useful life, and have a total salvage value of $39,200. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $ 300,000 Less operating expenses: Commissions to amusement houses $ 90,000 Insurance 72,000 Depreciation 23,520 Maintenance 40,000 225,520 Net operating income $ 74,480 Exercise 12-8 Part 1 (Algo) Required: 1a. Compute the payback period associated with the new electronic games. Payback period (answer in years) 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? Yes or no?

Required information Exercise 12-8 (Algo) Payback Period and Simple Rate of Return [LO12-1, LO12-6] [The following information applies to the questions displayed below . ] Nick’s Novelties,...

Required information

Exercise 12-8 (Algo) Payback Period and Simple Rate of Return [LO12-1, 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 $392,000, have a fifteen-year useful life, and have a total salvage value of $39,200. The company estimates that annual revenues and expenses associated with the games would be as follows:

Revenues		$ 300,000
Less operating expenses:
Commissions to amusement houses	$ 90,000
Insurance	72,000
Depreciation	23,520
Maintenance	40,000	225,520
Net operating income		$ 74,480

Exercise 12-8 Part 1 (Algo)

Required:

1a. Compute the payback period associated with the new electronic games.

Payback period (answer in years)

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? Yes or no?

Jun 08, 2022

SOLUTION.PDF

Required information Exercise 12-8 (Algo) Payback Period and Simple Rate of Return [LO12-1, LO12-6] [The following information applies to the questions displayed below . ] Nick’s Novelties,...