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Homework answers / question archive / Listed below are the three functions of the management of an organization
Listed below are the three functions of the management of an organization.
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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,
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Compute the payback period associated with the new el.ronlc games.
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.
