Nicks Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $425,000, have a fifteen-year useful life, and have a total salvage value of $42,500. The company estimates that annual revenues and expenses associated with the games would be as follows:

Revenues				$	220,000
Less operating expenses:
Commissions to amusement houses	$	70,000
Insurance		25,000
Depreciation		25,500
Maintenance		40,000			160,500
Net operating income				$	59,500

Exercise 12-8 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 11%, will the games be purchased?