Nick's Novelties, Inc is considering the purchase of the 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:

Revenues : $200,000

Less operating expenses:

Commission to amusement houses: $100,000

Insurance:$7,000

Depreciation : 35,000 Maintenance: 18,000 $160,000

Net Operating Income$40,000

Assuming Nick's Novelties, Inc will not purchase new games unless they proved a pay back period of 5 years or less. Would the company purchase the new games?

Compute the simple rate of return promised by the games. If the company requires a simple rate of return of at least 12%, will the games be purchased?