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Listed below are the three functions of the management of an organization
Listed below are the three functions of the management of an organization.
Required information [The following inromution applies. [he questions displayed belotel
Nick, Novelties, Inc., is considering the purchase of new electronic games. place in itr amusement houses. The games would cost a total of $300,000, have a fifteen-year useful life, and have a to.I salvage value of $30,000. The company estimaWs that annual revenues a. expenses associaWd with the games would be as follows:
8200,000
00,1Mo 30, 000 143,000
8 53,00o
Required: la. Compute the payback period associaWd with the new electronic games. lb. 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,
Complete this question by entering your answers in the tabs below.
Compute the payback period associated with the new el.ronlc games.
Expert Solution
1-a) Computation of Payback Period:
Payback Period = Initial Investment / Annual Cash Flows
Here,
Initial Investment = $300,000
Annual Cash Flows = Net Operating Income + Depreciation = $57,000 + (($300,000-$30,000)/15) = $57,000 + $18,000 = $75,000
Payback Period = $300,000/$75,000 = 4 years
1-b) As the payback period calculated above is 4 years So, Nick's Novelties can buy new games.
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