Nicks Novelties, Incorporated, is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $332,000, have a fifteen-year useful life, and have a total salvage value of $33,200. The company estimates that annual revenues and expenses associated with the games would be as follows:

Revenues		$ 280,000
Less operating expenses:
Commissions to amusement houses	$ 80,000
Insurance	57,000
Depreciation	19,920
Maintenance	60,000	216,920
Net operating income		$ 63,080

Exercise 12-8 Part 2 (Algo)

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

2b. If the company requires a simple rate of return of at least 12%, will the games be purchased?