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Nicks Novelties, Inc., 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			175,500
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?