Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his divisions return on investment (ROI), which has been above 20% each of the last three years. Derrick is considering a capital budgeting project that would require a $3,000,000 investment in equipment with a useful life of five years and no salvage value. Holston Companys discount rate is 15%. The project would provide net operating income each year for five years as follows: Sales $ 2,500,000 Variable expenses 1,000,000 Contribution margin 1,500,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $600,000 Depreciation 600,000 Total fixed expenses 1,200,000 Net operating income $ 300,000 Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Required:

1. Compute the project's net present value. (Round discount factor(s) to 3 decimal places.)

2. Compute the project's simple rate of return. (Round your answer to whole decimal place i.e. 0.123 should be considered as 12%)

3-a. Would the company want Derrick to pursue this investment opportunity? Yes No

3-b. Would Derrick be inclined to pursue this investment opportunity? Yes No