Nicks Novelties Inc is considering the purchase of new elect

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 $300,000. have an eight-year useful life, and have a total salvage value of $20,000. The company estimates That annual revenues and expenses associated with the games would be as follows: Compute the pay back period associated with the new electronic games,

Solution

Initial investment / net annual cash flow = payback period

=300,000/75,000                                          = 4 years

Net annual cash flow = net operating income + Depreciation

Initial investment / net annual cash flow = payback period =300,000/75,000                                          = 4 years Net annual cash flow = net operating income + Depreciation