Nicks Novelties, Incorporated, is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $175,000, have a fifteen-year useful life, and have a total salvage value of $17,500. The company estimates that annual revenues and expenses associated with the games would be as follows:

Revenues $ 200,000

Less operating expenses: Commissions to amusement houses $ 80,000 Insurance 25,000 Depreciation 10,500 Maintenance 60,000 Net operating income 24,500 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?