Nicks Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $320,000, have a fifteen-year useful life, and have a total salvage value of $32,000. The company estimates that annual revenues and expenses associated with the games would be as follows:

Revenues				$	230,000
Less operating expenses:
Commissions to amusement houses	$	80,000
Insurance		20,000
Depreciation		19,200
Maintenance		50,000			169,200
Net operating income				$	60,800

Garrison 16e Rechecks 2017-05-22

Exercise 13-8 Part 2

2a. Compute the simple rate of return promised by the games.

2b. If the company requires a simple rate of return of at least 14%, will the games be purchased?