Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's 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 $4,480,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 18%. The project would provide net operating income each year for five years as follows: Sales Variable expenses Contribution margin Fixed expenses: out-of-pocket costs Depreciation $ 3,900,000 1,700,000 2,200,000 Advertising, salaries, and other fixed $ 740,000 896,000 1,636,000 $ 564,000 Total fixed expenses Net operating income Click here to view Exhibit 12B-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using tables. 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? EXHIBIT 128-1 Present Value of $1; Periods 4% 1 5% 0.962 0.952 6% 7% 8% 0.943 0.935 0.926 2 0.925 0.907 3 0.889 4 0855 0823 0.708 0.792 5 0822 0.764 0.747 0,713 0.681 6 0.790 0.746 0.705 0.666 0.630 7 0.760 0.711 0.665 0.623 0.583 0.482 0.425 N 0.731 0.677 0.627 0.582 0.540 0.502 0467 9 0.700 0.645 0.592 10 11 12 13 0.601 14 0.625 0.557 0497 0444 0397 0530 0.469 0.577 0.505 0.442 15 0555 0481 0417 16 0534 0458 0.394 0415 0.368 0.388 0340 0.362 0.315 0.339 0.292 17 0513 0.436 0.371 0.317 18 0494 0.416 0.350 0.296 0.270 0.250 19 20 21 0439 0.359 0.294 22 0422 0342 23 0.406 0.326 24 0.3390 0310 25 0.375 0.295 0.074 0.059 26 0361 0.28 0.066 0.053 0.042 27 0.347 0.265 0,207 0.125 0.098 0.076 0.060 0.047 0.037 28 29 0.116 0.090 0.069 0.107 0.082 0.063 0.054 0.042 0033 0.048 0.037 0.029 30 40 0.099 0.075 0.057 0.046 0.032 0.022 0.044 0.015 21% 22% 23% 24% 19% 20% 9% 10% 12% 11% 13% 18% 14% 15% 16% 17% 0.820 0.813 0.806 0.840 0.800 0.833 0.826 0.870 0.917 0909 0.893 0.885 0.877 0.855 0.847 0.901 0.862 0.694 0.683 0.672 0.650 0.640 0.661 0.706 0.718 0.890 0873 0.857 0.842 0.826 0812 0.743 0.731 0.797 0.783 0.769 0.756 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.564 0.551 0.537 0.524 0.512 0.482 0.467 0572 0.451 0437 0423 0410 0.592 0.552 0.534 0516 0.499 0.763 0.735 0.683 0.659 0.636 0.613 0.402 0.386 0.370 0.355 0419 0476 0.456 0.437 0.341 0.328 0650 0.621 0593 0.567 0.343 0319 0497 0303 0.289 0.275 0.352 0.335 0.319 0456 0.596 0.564 0.335 0.507 0.480 0432 0410 0.390 0.370 0.263 0547 0513 0.452 0.400 0.376 0.333 0.314 0.296 0.279 0.354 0.351 0.233 0327 0.218 0305 0.204 0.434 0.404 0.376 0.285 0.266 0.249 0.180 0.167 0.155 0.144 0544 0.500 0.460 0.424 0.391 0.209 0.194 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.676 0.614 0.558 0.508 0463 0.422 0.386 0.352 0.322 0.295 0.270 0.137 0.126 0.116 0,247 0.227 0.208 0.176 0.191 0.162 0.149 0650 0.585 0.527 0475 0429 0.388 0.350 0.317 0.287 0.261 0.103 0.094 0.086 0.148 0.237 0.215 0.195 0.178 0.162 0.135 0.123 0.112 0.168 0.152 0.137 0.102 0.092 0.124 0.112 0.356 0319 0.286 0.257 0.231 0.208 0.187 0.093 0.130 0.116 0.104 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.205 0.141 0.299 0.263 0.232 0.125 0.099 0.181 0.111 0.160 0.160 0.108 0.140 0.123 0.275 0.239 0.209 0.183 0.095 0.084 0.123 0.107 0.093 0.081 0.071 0252 0.218 0.188 0.163 0.141 0.198 0.170 0.231 0.146 0.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045 0.039 0.095 0.081 0.069 0.059 0.051 0.044 0.038 0.028 0212 0.180 0.153 0.130 0.111 0.032 0.194 0.164 0.138 0.116 0.098 0475 0.396 0.331 0.277 0.212 0.083 0.070 0.060 0.051 0.043 0.027 0.023 0.020 0.037 0.031 0.017 0.014 0456 0377 0312 0.215 0.258 0.178 0.149 0.124 0.104 0.087 0.073 0.061 0.051 0.043 0.037 0026 0.022 0.019 0.031 0.016 0.014 0.012 0.242 0.199 0.164 0.135 0.112 0.093 0.077 0.064 0.053 0.044 0.037 0.031 0.015 0.026 0.022 0.018 0.013 0.011 0.009 0.083 0.068 0.056 0.278 0.226 0.184 0.150 0.123 0.101 0.046 0.038 0.009 0.032 0.026 0.022 0.018 0.015 0.013 0.011 0211 0.262 0.170 0.138 0.112 0.091 0.074 0.060 0.009 0.007 0.049 0.040 0.033 0.027 0.022 0.018 0.015 0012 0.197 0.158 0.126 0.102 0.082 0.247 0.066 0.053 0.043 0.035 0.028 0.023 0.019 0.006 0015 0.013 0.010 0.007 30.184 0.146 0.116 0.092 0.047 0.038 0.030 0.024 0.020 0.016 0.013 0.010 0.009 0.007 0.006 0.005 0.004 0.135 0.106 0.084 0.009 0.007 0.006 0.033 0.005 010372 0.026 0.021 0.017 0.014 0.011 0.004 0.003 0.161 0.029 0.014 0.023 0.018 0.011 0.009 0.005 0.007 0.006 0.004 0.003 0.002 0333 0.255 0.196 0.150 0.026 0.020 0.016 0.012 0.010 0.008 0.006 0.005 0.002 0.004 0.003 0.002 0321 0243 0.185 0.141 0.022 0.017 0.014 0.011 0.008 0.006 0.005 0.004 0.003 0.002 0.002 0.002 0308 0231 0.174 0.131 0.033 0.026 0.020 0.015 0012 0.009 0.007 0.005 0.004 0.003 0.003 0.002 0.002 0.001 0.208 0.142 0.097 0,067 0.011 0.008 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0.000 0.000 0.000 0.000 0.000 25% 0.262 0.249 0.235 0.222 0.210 0.191 0.179 0.168 0.134 0.107 0.083 0.076 0.069 0.084 0.075 0.068 0.061 0.055 0.088 0.078 0.069 0.062 0.055 0.049 0.044 0.074 0.065 0.057 0.051 0045 0.040 0.035 0.062 0.054 0.047 0.042 0.036 0.032 0.028 0.034 0.030 0.026 0.023 0.024 0.021 0.018) 0.007 0.006 0.005 EXHIBIT 128-2 Present Value of an Annuity of $1 in Arrears; 11-(1/(1+r)^n)) Periods 4% 5% 6% 1 0.962 0.952 0.943 2 1.886 1859 1.833 1.808 3 2.775 2.723 2.673 2.624 4 3.630 3.546 3.465 3.387 5 4.452 4.329 4212 4.100 3.993 6 5.242 5076 4917 4.767 4623 4.486 7 6.002 5.786 5.582 5389 5.206 5033 8 6.733 6463 9 7435 7.108 10 8.111 7.722 7.360 7.024 11 8.760 8.306 12 9.385 8.863 13 14 15 16 17 18 19 5535 5.995 6.710 6.418 7.887 7499 7.139 6805 8.384 7.943 7.536 7.161 9.986 9.394 8.853 8.358 7.904 7487 10.563 9.899 9.295 8.745 8.244 7.786 11.118 10.380 9.712 9.108 8.559 8.061 11.652 10.838 10.106 9.447 8.851 8.313 12.166 11 274 10.477 9.763 9.122 12.659 11.690 10 828 10.059 9.372 13.134 12.085 11.158 10.336 9.604 6.210 5.971 5.747 6.802 6.515 6.247 8.544 20 21 13.590 12.462 11.470 10.594 9.818 14.029 12.821 11.764 10.836 10.017 22 23 24 25 26 27 28 29 30 40 7% 85 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 2194 22% 23% 24% 25% 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 1.783 1.759 1.736 1.713 1.690 1668 1.647 1.626 1.605 1.585 1.566. 1.547 1528 1.509 1.492 1.474 1.457 1.440 2.577 2531 2487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 2.074 2042 2011 1.981 1952 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.540 2.494 2448 2.404 2.362 3.890 3.791 3.696 3.605 3517 3433 3.352 3.274 3.199 3.127 3.058 2.991 2.926 2.864 2.803 2.745 2.689 4355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3410 3.326 3.245 3.167 3.092 3.020 2.951 4.868 4.712 4.564 4423 4.288 4.160 4.039 3.922 3812 3.706 3.605 3.508 3416 3327 3.242 3.161 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.726) 3.619 3518 3.421 3.329 5.759 5.537 5328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 3.905 3.786 3.673 3.566 3.463 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 4.054 3.923 3.799 3.682 3.571 6.495 6.207 5.938 5.687 5453 5.234 5.029 4.836 4.656 4.486 4.327 4.177 4.035 3902 3.776 3.656 6.814 6492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4439 4.278 4.127 3.985 3.851 3.725 7.103 6.750 6424 6.122 5.842) 5.583 5342 5.118 4.910 4.715 4.533 4.362 4.203 4.053 3.912 3.780 7367 6.982 6.628 6.302 6.002 5.724 5468 5.229 5.008 4.802 4.611 4.432 4.265 4.108 3.962 3.824 7.606 7.191 6811 6.462 6.142 5.847 5575 5324 5.092 4.876 4.675 4489 4.315 4.153 4.001 3.859 7.824 7.379 6.974 6.604 6.265 5954 5.668 5405 5.162 4.938 4.730 4.536 4.357 4.189 4.033 3.887 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4990 4.775 4.576 4.391 4.219 4.059 3.910 8.756 8.201 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812 4.608 4.419 4.243 4.080 3.928 8.950 8.365 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843 4.635 4.442 4.263 4.097 3.942 9.129 8.514 7.963 7469 7.025 6.623 6.259 5.929 5.628 5.353 | 5.101 4870 4.657 4.460 4.279 4.110 3.954 9292 8.649 8.075 7.562 7.102 6.687 6.312 5.973 5.665 5.384 5.127 4.891 4.675 4476 4.292 4.121 3.963 14.451 13.163 12.042 11.061 10.201 9.442 8.772 8.176 7.645 7.170 6.743 6.359 6.011 5.696 5410 5.149 4.909 4.690 4.488 4.302 4.130 3.970 14,857 13.489 12.303 11.272 10.371 9.580 8.883 8.266 7.718 7.230 6.792 6.399 6044 5.723 5.432 5.167. 4925 4.703 4.499 4.311 4.137 3.976 15.247 13.799 12.550 11.469 10.529 9.707 8.985 8.348 7.784 7.283 6.835 6.434 6.073 5.746 5451 5.182 4.937 4.713 4.507 4318 4.143 3.981 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.843 7.330 6.873 6464 6.097 5.766 5.467 5.195 4.948 4.721 4514 4.323 4.147 3985 15.983 14.375 13.003 11.826 10.810 9.929 9.161 8.488 7.896 7.372 6.906 6.491 6.118 5.783 5.480 5.206 4.956 4.728 4.520 4.328 4.151 16.330 14.643 13.211 11.987 10.935 10.027 9.237 8.548 7943 7409 6.935 6514 6.136 5.798 5.492 5.215 4.964 4.734 4524 4.332 4.154 16.663 14.898 13.406 12.137 11.051 10.116 9.307 8.602 7.984 7441 6.961 6534 6.152 5.810 5.502 5.223 4.970 4.739 4.528 4.335 4.157 16.984 15.141 13.591 12.278 11.158 10.198 9.370 8.650 8.022 7.470 6.983 6.551 6.166 5.820 5.510 5.229 4.975 4.743 4.531 17.292 15.372 13.765 12.409 11.258 10.274 9427 8.694 8.055 7.496 7.003 6.566 6.177 5.829 5.517 5.235 4.979 4.746 4.534 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951 8.244 7.634 7.105 6.642 6.233 5.871 5.548 5.258 0.820 0.813 0.806 0.800 3.988 3.990 3.992 4.337 14.159 4.339 4.160 3.995 3.994 4997 4.760 4.544 4347 4.166 3.999