Required informationExercise 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 $ 300,000Less operating expenses: Commissions to amusement houses$ 90,000 Insurance72,000 Depreciation23,520 Maintenance40,000225,520Net 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?

For calculating the payback we will first need to calculate the adjusted annual cash flow by adding…

Answered: Required information Exercise 12-8…

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...

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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?

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