Nick's Novelties, Incorporated, is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $475,000, have a fifteen-year useful life, and have a total salvage value of $47,500. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues: ______________$240,000

Less operating expenses:

Commissions to amusement houses : $70,000

Insurance: $45,000

Depriciation: $28,500

Maintenance: $30,000____________$173,500

Net operationg income is (240,000-173,500) $66,500

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

2b. If the company requires a simple rate of return of at least 10%, will the games be purchased?