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 $425,000, have a fifteen-year useful life, and have a total salvage value of $42,500. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues Less operating expenses: Insurance $220,000 Commissions to amusement houses $ 70,000 25,000 25,500 Maintenance 40,000 Net operating income 160,500 $ 59,500 Depreciation equired: a. Compute the payback period associated with the new electronic games. . Assume that Nick's Novelties, Incorporated, will not purchase new games unless they provide a payback period of five years ess. Would the company purchase the new games?

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 $425,000, have a fifteen-year useful life, and have a total salvage value of $42,500. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues Less operating expenses: Insurance $220,000 Commissions to amusement houses $ 70,000 25,000 25,500 Maintenance 40,000 Net operating income 160,500 $ 59,500 Depreciation equired: a. Compute the payback period associated with the new electronic games. . Assume that Nick's Novelties, Incorporated, will not purchase new games unless they provide a payback period of five years ess. Would the company purchase the new games?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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