Nicks Novelties, Incorporated, is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $300,000, have a fifteen-year useful life, and have a total salvage value of $30,000. 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	$ 60,000
Insurance	30,000
Depreciation	18,000
Maintenance	35,000	143,000
Net operating income		$ 57,000

Exercise 14-8 Part 2 (Algo)

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

simple rate of return = _____ %

2b. If the company requires a simple rate of return of at least 11%, will the games be purchased?

yes?

No?