Question
3 Exercise 13-9 Net Present Value Analysis and Simple Rate of Return [LO13-2, LO13-6] 166 pos Derrick Iverson is a divisional manager for Holston Company.
3 Exercise 13-9 Net Present Value Analysis and Simple Rate of Return [LO13-2, LO13-6] 166 pos Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's retum on investment (RO), which has been above 20% each of the last three years. Derrick is considering a capital budgeting project that would require a $3.300.000 investment in equipment with a useful life of five years and no salvage value. Hoiston Company's discount rate is 17%. The project would provide net operating income each year for five years as follows: alook Sales Variable expenses Contribution margin H Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Pr Net operating incone $2,900,000 1,200,000 1,700,000 $640,000 660,000 1,300,000 $ 400,000 Required: 1. Compute the project's net present value. 2. Compute the project's simple rate of return 3a. Would the company want Derrick to pursue this investment opportunity? 3b. Would Derrick be inclined to pursue this investment opportunity? Check my work
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