Nick’s novelties, inc., is considering the purchase of new electronic games to place in its amusement houses. the games would cost a total of $720,000, have a fifteen-year useful life, and have a total salvage value of $72,000. the company estimates that annual revenues and expenses associated with the games would be as follows: revenues $ 250,000 less operating expenses: commissions to amusement houses $ 80,000 insurance 40,000 depreciation 43,200 maintenance 40,000 203,200 net operating income $ 46,800.
required:
1a. compute the payback period associated with the new electronic games.
1b. assume that nick’s novelties, inc., will not purchase new games unless they provide a payback period of five years or less. would the company purchase the new games?