13.9

te games be purchased? mes. If the company requires a simple EXERCISE 13-9 Net Present Value Analysis and Simple Rate of Return (L013-2, LO13-5) determined by his division's return on investment (ROI), which has been above 20% cach of the Derrick Iverson is a divisi manager for Holston Company. His annual pay raises are largely investment in equipment with a useful life of five years and no salvage value. Holston Compa last three years. Derrick considering a capital budgeting project that would require a $3,000,000 By discount rate is 15%. The project would provide net operating income each year for five D 20.000). 0,000 0,000 ars years as follows: $2,500,000 1,000,000 1,500,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation... Total fixed expenses Net operating income ettling $600,000 600,000 0,000 chine ve a 1,200,000 $ 300,000 Required: 1. Compute the project's net present value. 2 Compute the project's simple rate of return. 3. Would the company want Derrick to pursue this investment opportunity? Would Derrick be inclined to pursue this investment opportunity? Explain. tive